Im a total NOOB: Investing in Multi-family homes.

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Im a total NOOB: Investing in Multi-family homes.

Paul D.
New to Real Estate · NJ · Member since 2016 · 34 posts · 4 votes

Hello BiggerPockets People,

       So I'm throwing my self out to the wolves and admitting that I am a total noob who has been reading book after book, non stop podcasts, and soaking in as much information as I can about investing. Im about 6 months in now with my studies and just keeping up with my due diligence and also saving up money before I finally pull the trigger. I am from northern New Jersey and planning on investing in Multi family homes. As I am reading right now a thought popped in my head and I said I'll see if I can pull some info from BP. With all this said I will ask my first ever question on BP!

I am interesting in planning with a multi family property preferably a 4-plex if I can figure out the financing part of it. Worst comes to worst I was thinking about "house hacking" anywhere from a 2 family to a 4 family home.

Is a property manager necessary for my first multi family property investment? If not, what are some suggestions of how to run the property smoothly and dealing as less with it as possible?  

Don't get the wrong idea I am not lazy, but I also don't want to play landlord. I want to keep my role as an investor. Consider that I already am running a business of mine and managing that as it it. Time is very limited to be dealing with tenants. If everything goes as plans I would eventually like for these investments to allow me to make the transition to full time real estate.

like I said I'm new and I'm trying to get my feet wet and I know this is great place to start.

Thanks in advance guys!

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Ishaan Misra
San Jose, CA · Member since 2016 · 30 posts · 11 votes
9y

@Paul D. thanks for sharing.

I actually have some experience in managing both SFHs and MFHs and my recommendations with regard to hiring professional property management are as follows:

If you are living in the property full-time, the main value propositions offered by professional management will be as follows: marketing, screening & placement of tenants; rent collection; maintenance.

Of these three, rent collection is the easiest for a DIY landlord. However, when it comes to the time and energy required to do an outstanding job of getting the best tenant (marketing, screening, qualification...etc), particularly handling the inbound applications and all the showings, hiring a PM may be worth the expense.

One thing to be very wary of: PMs who charge many, seemingly ridiculous fees. For example, some PMs actually charge you a monthly management fee before a tenant is even placed. This is ridiculous and provides a clear conflict of interest. Also, many PMs charge mark-ups on maintenance jobs, another clear conflict of interest. 

Ultimately, you will have to make the decision as to whether or not to hire a professional PM. Asking many questions and interviewing as many PMs as possible will give you the best breadth and depth of information to make the best, most well-informed decision.

Please feel free to PM me should you have any other questions.

All the best!

IM

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  • Ishaan Misra
    San Jose, CA · Member since 2016 · 30 posts · 11 votes
    9y

    @Paul D. thanks for sharing.

    I actually have some experience in managing both SFHs and MFHs and my recommendations with regard to hiring professional property management are as follows:

    If you are living in the property full-time, the main value propositions offered by professional management will be as follows: marketing, screening & placement of tenants; rent collection; maintenance.

    Of these three, rent collection is the easiest for a DIY landlord. However, when it comes to the time and energy required to do an outstanding job of getting the best tenant (marketing, screening, qualification...etc), particularly handling the inbound applications and all the showings, hiring a PM may be worth the expense.

    One thing to be very wary of: PMs who charge many, seemingly ridiculous fees. For example, some PMs actually charge you a monthly management fee before a tenant is even placed. This is ridiculous and provides a clear conflict of interest. Also, many PMs charge mark-ups on maintenance jobs, another clear conflict of interest. 

    Ultimately, you will have to make the decision as to whether or not to hire a professional PM. Asking many questions and interviewing as many PMs as possible will give you the best breadth and depth of information to make the best, most well-informed decision.

    Please feel free to PM me should you have any other questions.

    All the best!

    IM

    2Reply
  • Paul D.
    OP
    New to Real Estate · NJ · Member since 2016 · 34 posts · 4 votes
    9y

    Hey @Ishaan Misra Thanks so much for the reply.

    Thats pretty useful information I will def keep that in my notes. Originally I was going to go for SFH's but as I kept reading it I get the idea that MFH's I can get a greater return and plus if I have to or want to I can live in one of them and still produce streams of cashflow. Books I read say hire a PM and just stay as an investor and I have some people tell me there's no reason to hire a PM for one property.

    When I get really serious with my searching I'm going to be conservative with my numbers and include PM fees in there. If the numbers come out with cashflow I figure why not just do it and have them manage it for me. Is that a naive way of investing or thinking? 

    I want to be in this game for the long run of buy and holds,save up and increase my portfolio one property at a time. So I figure If there is cashflow even wit ha PM in the numbers then go for it.

    1Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    Yep. ONLY pull the trigger if to cash flow, YOU don't need to "play landlord"! Welcome to BP...

    1Reply
  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    9y
    I would read/learn about property management and manage your first small MF. As an investor, you'll need to manage property management companies and I look at this just like leadership - How can you lead and manage if you haven't done it yourself, even on a small scale?! Managing 2-4 properties is an easy task, don't wast your cash flow on property management starting out and learn by reading and doing.
    1Reply
  • Paul D.
    OP
    New to Real Estate · NJ · Member since 2016 · 34 posts · 4 votes
    9y
    Sounds good. Brent Coombs Ishaan Misra correct me if I'm wrong or if I'm missing any information here but what I have picked up and learned to figure strategy numbers out when analyzing deals are the following: -Figuring out the cap rate (lower the better or less risk) -Making sure I have a positive NOI -Buying it right. Meaning trying to get property at about 10-20% discount so I'll already have equity built into it. -Figure out what the expenses will be monthly including the mortgage and PM. By searching the area of average rents in the area if the numbers will be able to give cash flow for the property. (If cash flows go for it. If not forget it) Are these smart strategies of thinking before I invest? Also am I missing anything else? Thank you
    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    For properties up to a 4-plex size, the market cap rate has little to no bearing, because that's only used for commercial (ie. larger) properties. You need to find sold COMPS instead. Too many other variables come into play with 4-plexes or smaller, because they're all affected by the owner-occupier market too, which is VERY fickle when it comes to esoteric things like kerb appeal...

    But certainly, try to ensure that its Return On Investment is in line with YOUR investment goals!

    If you insist on converting your analyzed figures into what its non-financed cap rate return would be, just be aware that as you say, the lower the MARKET cap rate, the "safer" the market perceives that location, BUT, once you include significant leverage into the analysis, the HARDER it will be to get any sort of positive cash flow ie. not good, UNLESS you're counting on non-stop appreciation.

    Dare you count on unbridled ongoing appreciation, in these uncertain times? Hmmm...

    2Reply
  • Ishaan Misra
    San Jose, CA · Member since 2016 · 30 posts · 11 votes
    9y

    @Paul D. I would say that all of the points you made are valid and important theoretical frameworks when going through the investment analysis process. One thing I would mention is to not neglect the broader market implications on real estate. For example, the strength of the local economy, the diversity of that economy, historical and projected job and income growth, and landlord vs. tenant-friendly local policies. These are all factors that in a broader sense could end up affecting the attractiveness of a particular market.

    1Reply
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