Where to go with a 4-unit multi-family property (In over my head)

25 Replies

About four years ago I got a 4-unit property with a FHA 203K loan, I was 26. The goal was to fix it up, live in it and rent the other 3 units out to cover the entire mortgage and have a a slight profit. I was getting the help of my retired uncle, who is one of these old guys that can fix just about anything and was an avid DIYer, in addition to being a retired HVAC installation teacher.

I ended up having to use a contractor for some of the work in order to get a the loan, my thoughts were to use the contractor for just enough so that I could get the property, and do the rest myself, with the help of my uncle (who owns 2 multiunits and his own home).

Fast Forward to today, I am still not finished.  I have one tenant who lived in the building when I purchased it and has been living there for about 13 years.  While I have made substantial improvements to the building (new roof, new plumbing, some new electric).  There is still a lot more that needs to be done.  Plus me and my uncle are constantly arguing, I'm noticing a lot of things he does don't quite make sense, and in a few instances have cost me money because they were flat out wrong.

I know I need to change my approach but I am not sure how.  I have the one tenant, who covers nearly half of the mortgage.  I have a fairly well paying job, but I also have a substantial amount of work left.  My neighborhood is changing rapidly and the median rent is going up, but along with the increase in rents, the quality of available units is also increasing.  One friend/investor recommended just getting out a loan gutting and starting from scratch, my uncle advocates just doing the minimal amount of repairs and getting someone in, even if I am getting way less rent then I can.  I want to do something somewhere in the middle.  I am apprehensive about taking out a sizeable loan (and unsure how and what options there are in the financing department).  I have a decent amount of savings, and I am about 50% finished with one more unit, what I have left is largely cosmetic, sanz some plumbing and electrical work that needs to be done,  I just recently had a new HVAC system installed in this unit.

Not sure what the next steps I should take should be.  I'm definitely rambling a little bit, so I am going to stop now..lol.

Thank you.

It sounds like you need to focus on getting the closest unit rent-ready.  

Do the work right the first time.  If you are working full time you should hire in help.  Not your uncle.  Not some guy your uncle knows.  

It sounds like you need to keep investing capital to get your building to full operation.  There's no easy way around that.  Suck it up and spend money smart and market your two vacant units.   

Make a punchlist for what needs to happen and check the boxes.  

To decide whether a big remodel vs. a quick remodel makes sense, you need to provide more #'s about how much each would cost and what the difference in prospective rent would be.  Is this place in a good/middle/poor neighborhood? 

This makes sense, but how would I go about getting the numbers?  My initial thoughts, were to start looking at comps, in the area that are renting for the amount I would like to get.

The place is in a good mixed neighborhood.  Thats what makes it a little hard for me to figure out which way to go.  There are about 3 brand new large mixed use complexes within walking distance, that are renting from between 2200 - 3400 a month (these have pools, fitness rooms, restaurants and bars, all the frills).  There is also a large low income development as well, in addition to some older apartment complexes and a few multiplexes like the ones I own.  Decent mix of older unrennovated homes, newly renovated homes and on by block a brand new town house community was built, where the townhouses start at 700K (when I moved over there they were going for 350K).  The property values and rents in the neighborhood are definitely increasing.  A lot of new development is going on, and the area is walking distance to mass transit.

The area is truly a mixed income area.  You mentioned spending the money, which at this point I am more open to (I was ADAMANTLY against it early on).  Thing is I am not sure how to go about it, like I said I make a decent salary now and have very low living expenses.  Is paying for stuff out of pocket what you are talking about, or do you mean look into the loan options.  I am still a little new to the various financing options, but I have been learning more since reading this blog.  Thank you for your reply.

my advise

you seem very unsure of what direction you are going and it sounds like you have more to learn in the industry, I would act very quickly to hire a competent contractor "I did not say expensive " and get all four units rented you should not live there just a quality of life thing this project will start to take a toll on you, after all units are rented get an appraisal of the property and then have a broker give you a cost annalist cost vs higher rent if you push the quality of build out to increase rent, if the money says that is the way to go use your cash flow and finish project, otherwise sell the project or collect rents, the key is to rent out units

good luck

I get the impression you are living in one unit and I assume it is in good shape, if so rent it out and move into the worst unit and start fixing it up in your spare moments, but focus on getting the next vacant unit ready and rented first. Don't over improve at this point, just good solid tenants in a clean and functioning unit, if the market is good and appears feasible you can go for higher rents through upgraded units as they become vacant. I would have a master plan of where you want to go with each unit even though your not doing the improvements at the present time.

Each situation is different, so hard to give any hard advice, but here's a few thoughts from my experience on our tri/quad over the last two years:

When I started I thought I would do a lot of the work myself. What ended up happening is that I puttered along and the units I was working on sat vacant. I had two tenants that were nearly covering the mortgage, so I thought I was saving money by doing things myself. Eventually I realized that every month that the unit I was working on stayed vacant I was losing $1200. That made the money I thought I was saving by dong the work myself look pretty pathetic. So, I burned through 15k that I borrowed from family and finished the large unit and got it rented. I went middle of the road in terms of remodel. new fixtures, refinished the hardwood, but stuck with used appliances in the kitchen and held off on a kitchen remodel. In my market I wouldn't be able to get much more for the space no matter how nice I made it, so I think it was good that I didn't spend more. 

Once that one was rented I moved on to turning a random garage/empty rooms space into a 2/1. This was a pretty big job, adding some walls, a bathroom, a kitchen... I learned from the first round and hired out almost all of the work. I work full time, so thinking that I could do it on weekends or evenings just wasn't realistic, and I kept reminding myself that the sooner I finished, the sooner I'd be bringing in another $1000/mnth. It still could have gone faster, but after a coupe months we had that one fully remodeled and rented. I put money on credit cards and a line of credit at the bank to get it done. Now a couple of months later I have the money to pay that all back. The property is now fully rented, cashflowing well, and I'm using the funds to pay off debts as needed, while working to get into my next property. 

So, I guess what I would say for your situation would be to access money however you can (your savings, line of credit, prosper.com, friends and family...) Get it done. From the sound of your area it sounds like you won't be competing with the brand new places, but you'll be better than the cheap places. So, look at what other places like that look like, what kind of features they have, follow that lead, estimate middle range rents, and go for it. 

@David Harris 

Sorry to hear that things are not going well for you, however I have a question. You said you bought the property with a 203k loan. From my understanding HUD requires you use an advisor to help estimate repairs and draws are given as the work is performed. If this is the case, how is it that you have gone 4 yrs, run out of money, and still haven't completed the rehab of the property? How this happened really isn't clean......Did I miss something?

There are plenty of big-talkers here who brag about putting 'no-money down' and doing deals with zero captial in.  I have never seen a deal that I liked that didn't require some work or repositioning and that almost always requires capital (spending money, time, effort). 

What does my project need? 


How will I pay for  it?

Should always in theory be separate questions.  Of course none of us can wave a wand and make money appear, but the point is to decide what the right amount of money is to spend.  

Look at comparable rents in your area for units of varying condition.  Then see if it makes sense to spend the 'extra money.' 

If you spend an extra $10K, and are able to get a rent that is $300 per month higher ($3,600 per year) that equates to a 36% return on your capital.  

If it means $20 more per month (or $240 per year) you get a 2.4% return.  Not so great. 

Once you have answered how much of a remodel you think you need, then figure out how to pay for it.  Equity line advance possible?  Borrow from a friend?  Etc. 

@Orion Walker   's  point about vacancy costs is excellent.  Every day your units sit vacant is lost revenue you will never get back.  


Thank you all.

For the advice.  @Orion Walker , your thoughts are kind of echoing how I am feeling now..thanks for the advice.

@Mike Peter , I definitely feel like I still need to learn a lot more about this business, you are definitely right about needing to finish at least one unit.  

@Tom V.   I'm have actually been trying to do what you are saying to figure out which way to go.  Basically seeing what spending X amount of $ can get me in terms of rent.  Trying to use that as a guide to drive what work needs to be done, any suggestions on reaching out to contractors, I have been using angieslist, but past that, I have found that most contractors are booked up, or just dont return calls.  

@Rod Smith .  So, 203K loans.  Yes you are right, you have a adviser to help you estimate repairs and stuff, but thats not really what they do.  The way it really works, is you find contractors that will work with the 203K loan (which is hard in itself, most GC's do not like the way money is distributed so a lot of contractors just wont work with 203K recipients), the advisers job (at least the one I had) was really to inspect what the contractor is doing to make sure you dont get taken for a ride, and that the money is used well, the also approve the draw checks.   In addition to that, they kind of work with the bank (the bank is who recommended my adviser), to keep the banks investment in tact.  My problem was three fold, 1) I wasnt super clear with exactly what I wanted done, I was basically listening to entirely too many different opinions, 2) I overestimated how much work I could to myself in my free time, so my thoughts were to pay for just enough work to get the adviser to say the home is safe for me to live in and tell the bank everything was OK.  3) The contractor I had really slummed, my uncle and my adviser both realized that late into the game, so I just had to ride it out with the guy.  Honestly 203K is a great program, I had another friend with a construction management background use a similar program (NACCA) to get his 4 unit and it worked out well for him.  It's just you really have to have a good adviser and be clear on what you want to do and how much you want to spend.

@David Harris I'm new to REI and am looking into buying a 2-4 unit property using an FHA loan. I hadn't given much thought to the 203K option though.

I feel like you're taking about the Brookland neighborhood, though most of your comments could apply to many areas of DC.

I suggest focusing on finishing a unit so you can get it rented. I would not try to approach the amenities (or price point) of the new complexes. I would focus on the budget minded renter who can appreciate the area's benefits without having to pay top dollar for them. Many renters in our area are more concerned with living in a decent neighborhood than granite counters and stainless appliances. And if an individual could afford $2200 rent, they'd chose a studio in the new development.

@Jordan H. , yes I am talking about the Brookland area or close o it depending on who you are talking about.  and that was the logic I was going for too, at this point it wouldnt make sense for me to try to compete with some of the larger luxury units, because even if I tried to offer all of the same unit benefits, I still cant compete with the community benefits (ie, gym, pool, huge roof decks, lounges, etc, ground floor retail).  Last night I actually went around and took a look at some 4 unit properties that friends I know rent in to get a look at what they were getting for their rent, and pretty much its what you just pointed out.  Nice touches, but not super luxurious ones.  Actually some of them are quite similar to what some of the new developments do in their "affordable/market rate" units.

If you are a first time home buyer I would definitely suggest you look into 203K and Also NACA. Two friends of mine used the rehab product NAACA offers to get their 4-unit properties, the rates were a little lower (NACCA rates tend to be lower then the prime rate, but you have to take classes). you can use FHA and NACCA for rehabs and just regular loans, granted with both you have to either pay pmi or something similar to pmi. If you go with the 203K route, and try to do a rehab, just from experieince I would say make sure you get an agent (if you use one) and lender that have experience working with the products. I think NACCA chooses the lender for you (not 100% sure about that). I will say just from talking to my friends and looking around the landscape in DC for multi units has changed so DRAMATICALLY. One of my friends did a complete gut rehab on his 4unit in the Trinidad area, but he was under 200K for the shell, but some of the prices ive seen listed on Redfin now, are like 340K and higher for ones that need a substantial amount of work, just on my block alone there is a 2 unit for sale by the owner, he is asking 675 and the place needs substantial work (but it is fully occupied). Still some deals east of the river, but west of the river developers are really snatching everything up and purchasing with cash. Just getting mine was an ordeal, because of all the cash offers I had to compete with, but live and learn.

Good luck to you, I'm more than happy to share more of my experiences with the 203K program, This book was a pretty good book that helped me in the decision


but honestly no book can really prepare you for the process.  It definitely has a lot of moving parts.

@David Harris I've been renting in Brookland for over 3 years and watched the area change. With 2 universities in the neighborhood, I expect the rental market to continue to improve. In fact, I'd love to buy the building I rent in. I have no idea how to start that conversation with my landlord though.

I'll do some reading about the NACA program this weekend. I've also added that book to my reading list. Thanks for the info.

Go with your gut and do a mid level.  You can't compete with those full use guys (gym, pool, etc).  Also, it would take a high end reno to do that which adds up fast.

Just do an aesthetically pleasing, mid level, remodel.  High(er) end laminate flooring, granite counter tops, porceline/ceramic tile in bathroom.  Nice looking, durable stuff that doesn't cost too much.

Get a contractor and stop fussing around with your uncle.  Just have someone get the job done asap, seems like you are missing more out on potential rent opportunity a lot more than you would be saving in labor.

David, I went through something similar last year.  In my case I bought 2 4 plexes right next to each other.  I only wanted one but the owner only wanted to sell to somebody who would buy both. Anyway ended spending everything to buy the properties and the renovation budget went nearly to zero. I have never done serious construction work but that was my position moving forward.  I also have a full time job that requires me to travel extensively.  

The thing that saved me was stepping back and looking at this project as s business and as a second time job. Cash flow was critical to fund the repairs.  I kept all the tenants at below rents to keep flowing. I ranked each unit from to best to worst and interviewed the tenants extensively. I decided which tenants were the keepers and which were less desirable. I decided to tackle the worst unit first and leave the best for last. As each was rehabbed I moved tenants that I liked into the fixed units. I increased their rent but they got better units.

My renovation plan put me on site every evening of the week and all day on weekend. I did everything from drywall repair, to tile, to kitchen cabinets to sanding staining floors. I never did any of this type of work before, but YouTube is a life saver. First unit took 7 weeks, but the last one only took 2. The unit needed less work, but I am also much better at I what do. 

If I had a contractor my first unit could have done faster. I don't believe anybody could beat me on 6,7 or the 8th. I saved a TON of money doing everything and I learned even more. I don't plan on being the guy swinging the hammer forever, but I am  much better equipped to negotiate contractors and to estimate renovation budgets and time lines.

The point of this long story is it can be done. But you have to set goals with hard completion dates, just like a project at work. You also have to set your hours to work each day, just like any other job. 

There is a light at he end of the tunnel and hopefully a pot of gold. 

Good luck!


Thank you all for the input and advice.

@Arlen Chou    This is a pretty interesting store, thank you.

1) Were the properties fully or partially occupied when you bought them?

2) Did you hire out any of the work, (like plumbing, electric, etc? if necessary)

You are definitely right about treating it more like a job, and I and I can definitely see where the experience would help you in negotiations moving forward.  

Thanks so much for the input

If money is tight then rather than arguing with your uncle, go into weekend warrior mode and get it where you want it so it can be rented.  When I buy a new property and if I plan to do most of the work myself, I will dedicate about 12-16 hours on the weekends every weekend for repairs.  It helps to treat it like a 2nd job except you don't get paid until someone moves in.

Have you considered selling? What did you pay and what is it worth now? If the area has improved (sounds like it) there may be someone itching to take it off your hands and leave you a nice profit. I'd do a comparison of your returns from a sale with your returns on renovating and holding. 

I'd imagine you're frustrated and really want the satisfaction of getting the project completed. But remember, you don't buy a building, you buy an income stream. If the return is better from selling, then selling it is not a defeat -- just a smart business decision

@Jean Bolger , I have thought about selling it, but pretty much decided against that a while back. Even with the one tenant I have now, if I was to move out (I live there too), median rent in the city is more then what I pay for mortgage - rental income.  I might look at it a lot differently if I didn't live there, but for me to move out find someplace else to live and lose out on future income just doenst make sense to me at this point.  At least that is my current line of thinking

David Harris the units I purchased were occupied. However, they were 40% to 60% under market rent when I bought them. They had decades worth of deferred maintenance. There were literal holes in the roof that lead to the sheet rock sagging in a couple of units. It's crazy to think that people were living in these units and paying rent in the middle of Silicon Valley.

I did let the tenants know that rents would be normalized over time to come close to market. I raised rents by a small percentage on all of the units upon acquisition and then again 6 months later. The idea was to get the tenants used to the idea that rents would raise and also to stretch the pain out over a long period for them. These increases were done even though I had not done any upgrades/repairs yet. The belief was that a few small increases would not have as large of a psychological or bank roll effect on them. It also allowed them to prepare their personal spending habits for the increase in rents.

The roofing was done by contractors. I also had some dedicated electrical lines and breakers put in for over the range microwaves. Besides those two contractors, I did everything on my own.

Plumbing is not that hard, just dirty. Even cutting and installing copper is not that hard. I went to local plumbing store, non big box, and the guy there showed me how to solder the joints. I only had to buy the materials. Small shops are great!

Sheet rock is not hard either, just dirty.

Installing kitchen cabinets is very easy. I did all uppers and lowers on my own. I bought a pole off ebay that acts like a third hand to hold the cabinet in place as you screw everything together. Just make sure you take the time to measure everything carefully and use a long level to make sure everything is straight. Even cutting and installing granite can be done with hand tools! I did not know that until I did some research.

Tile is not hard either if you go out and buy or rent a tile saw. Don't try it with a hand scribe type cheap tile cutter. The water cooled tile cutter is way faster and much easier.

I did laminate floating floors in some of the units that I could not save with a sander and stain. Again not hard, just make sure you measure twice and cut once.

Don't cut cost on safety equipment. I see guys on TV cutting and doing demo without gloves and safety glasses all the time. Makes me wonder how these guys made it on the show.

With all the measuring and cutting I am really happy I paid attention in geometry class many moons ago in high school.

Just be as professional with the renovation project as you would be with a project at your day job and you should be fine.


I will keep my comments simple.

Keep Calm and Collect Rent.

It sounds like the area this property is in is stabilized and improving. Focusing on the economics of the area as you described- increasing rents and new inventory into the market- your property is primed to be an ideal long-term hold. Do not let the short term struggles distracted you from the game.

There are two factors to remember in climates like yours.

  1. 1.) Rising Rents
  2. 2.) Increasing Supply

Sooner or later the neighborhood will become saturated and the absorption rate will tier off causing developers to pull back production. Likely, one of these newer properties will suffer before you will because it is these properties that push status quo in attempt to define market rents. Renters will still focus on affordability and you have an asset that can offer that.

With that said, all these new properties are nice. They are shiny. They look good, feel good and demand a cool price. You need to keep pace with their product. When the market tiers off you do not want to be caught with your pants down with a property that has deferred maintenance, old countertops and outdated cabinets, stained and tired flooring and little attraction. 

Now is the time to reposition your property to compete with the Big Boys but it does not mean you have to gut it out. Focus on the kitchen and baths. If you do the majority of the work yourself you should be able to remodel your kitchen and baths for around $3500-5000.  

Of course, it all depends on your pocket book. You may have a good paying job but you may also have a good amount of debts. If your property can sustain the updates I think you should go for it.

Remember, Keep Calm and Collect Rent!

Are you interested in selling it and starting over with a smaller project? I might be interested in buying.

@David Harris oh sure, that makes perfect sense. 

So, you're not really taking a bath on this- you've got a place to live at an affordable rate, and in time the work will get done and you'll be sitting pretty. Things always take longer than you plan. My rule of thumb is to figure out how long you THINK a project should take and then multiply by three... it's actually scarily accurate a lot of the time, lol!

My caution would be to avoid over improving, just get it done. If the area is becoming trendier, people will want to live there, and many will be happy to find a place that doesn't charge quite as much as the shiny new places. If you go for IKEA-cute finishes, not upscale DC townhome finishes,  I bet you can get it finished out relatively cheaply (and hopefully quickly) and find plenty of eager renters. 

@David Harris if you bought this property from a Realtor, ask them for a contractor referral. Get a contractor in there who will finish the work. Time = Money. Tell him you're not looking for the Taj Mahal, you just want to get it rentable, and quick. It doesn't sound like you're really that far off from being finished; you're only far off because you're trying to do it all yourself. See what the number is, and if you can afford it, get it done. Then look into getting the property refinanced, and you will likely be able to pull all your money back out. 

@David Harris the one thing that I forgot to point out in my buildings was that I did not have to do anything that was structurally critical.  I did have some dry rot but the wall was not load bearing.  

Like @Marcus Curtis stated, collect rent.  You need to get the two units that are vacant to a level where you can get some tenants in and get your cash flowing in the right direction.  Then you can step back and put a plan in place to reposition/upgrade.

So its a 4 plex, you live in one unit and have one tenant right?  So then you have two units sitting vacant?  Why not do the absolute min on one to get it rented, take that cash each month and apply it to the 4th unit and make it what you want it to be.  When thats done and you rent that, let the lease end on the 3rd unit and use the cash from unit 4 to pay for the full remodel of that.  Break it down into more "digestible" pieces.  

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