Once I buy a multifamily property what are the odds that I will fall behind on mortgage payments because I can't find renters? Using mortgage calculators the rent they recommend me ask seems a little too steep for the area I want to focus my investing. I am born and raised in Austin TX and this is where I want to invest But multi family properties here are so high I'm beginning to second gues if I will be successful or fall into a severe amount of debt.
Hey @Drae C. welcome to BP. Your question cannot be answered with no numbers to go with it. If you buy a $100K fourplex and rent it at $1K per unit you will do fine, if you buy a $500K fourplex and rent the units at $500 a piece you are in trouble. You must know rent prices for the neighborhood and class of property you are looking at buying. You need to know demand, one of the best ways is rental and payment history. Look at books or tax returns. Having the place full with rent at $1K per month means nothing if they are all 4 months behind on rent. Figure out all the costs including financing and run the numbers. Know demand for that area.
What type of area are you buying in? Are you rents realistic? Are you willing to show the house? There is so many variables to the question it is not even funny :) BTW this isn't trying to be funny or avoid your question. Because honestly it speaks to so many different variables.
I will say this! I buy great location, schools, neighborhood (discussed in my blog). My houses are the crapiest houses in the nicest school districts. They are priced right. I have never had a day of vacancy between rentals. We have also gotten to be very good at landlord controls.
@Drae C. it does seem that Austin is starting to get overheated. Go by the market rent. Consult a realtor and/or do your own market surveys, depending on the size. The market rent is what it is, but you can charge under market rents if you like. It seems that there is so much demand and so little supply, that rents are going up faster than people realize. Remember, it's your profit that pays for vacancy, maintenance, and capital expenses.
I know of MF properties for sale that at prices that have no hope of a decent return. The sellers bought some time ago and have increased the value. Now they are selling with great returns. However, people seem to be buying with the hope of appreciation. If that's the case for your property, you just have to decide if you're willing to buy under those conditions.
I'm also curious how many units you're referring to.
Great discussion and very good advice. I look forward to seeing some of your answers to them!
I have been looking at multis and singles in the Austin MLS for months now, I dont see how anyone could make a decent return at what the multis are going for right now. So with that being said, if you finance a multifamily from the MLS at the current retail value, then your cash flow will be very little if any. If you dont have sufficient reserves and cant find tenants, then yes will fall behind on your mortgage.
The good news is that if your rent is priced right, you will not have a problem finding tenants. The rental market here is amazing.
Honestly you're going to have to find a great deal to make it work. This is truer in some areas more than others, but it's the baseline of real estate investing. Don't look at properties that are priced at market value, you need to be setting up your own parameter list and sticking to it. Do you want positive cashflow? (I would in this market, I doubt home values are going to keep appreciating much more) How much cashflow?
It might take looking at 100+ properties until you find one that will be a cashflow cow for you. You've got to ask yourself if it's worth the dig. Start networking with agents or wholesalers in your area and make sure they let you know when something priced low comes in.
I wouldn't buy a property that's going to have to rent for more than the market average to stay in the black. If you can't find a renter then you're going to be paying that mortgage out of pocket in full. Ouch.
It's very hard to find any decent Multi-family deals in TX...I could not find any thing meaningful with 15% returns and personally I ended up expanding my focus area beyond TX. I just bought a multi-family building in JAX and going through the loan, due-diligence process...hoping to close the escrow early part of Dec!
Good luck in your search.
MFR Investor from Austin.
Austin is a great town with a ton of growth and it's just a fun, youthful place to be right now. Before you line up to buy anything.....get in the market for a bit and pretend to be a renter. Shop the competition a bit and get a feel for rents and quality of properties. You can also acquire some owner names in the process if something is a bit run down and you can always ask if they might want to sell.
We all say this but start networking at reai and with local wholesalers...a lot of these guys solicit via internet marketing and they move product quickly so the best deals go to cash buyers. Start to network with some estate planners and financial planners and just let them know you're in the market for multi-family. Sometimes you can catch a deal that way....an old timer has amassed a bunch of properties, didn't keep up on the maintenance and the widow or kids have no interest in them. Network with some local contractors and let them know you will toss them a referral fee if they come across an owner wanting to sell. Novel approaches but they've worked for me at times. Even in a hot market....with some effort, you can always find a deal!
finding renters in austin isn't a problem. The vacancy rate city wide is between 2-3%. We use 5% for our models. It's not just about finding renters. It's about finding the right renters. Be sure to screen all of your prospective tenants thoroughly. Putting a bad tenant in your property is worst than having a few extra weeks of vacancy.
There are deals out there. You just have to be prepared to move quickly and get them under contract before someone else does. Do your due diligence during the option period. The best opportunities that we are finding are in under rented properties where we can increase rents within a few months after closing.
Jeff Clawson, AustinVestors | 512‑814‑6374 | http://www.AustinVestors.com
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