looking for guidance about getting into multi family

12 Replies

Dear BP Colleagues,

I am a new investor, looking to venture for the first time in multi-family - what are the things to look out when you are new to the game and starting out. 

(1). since I am looking for rentals - would I get access to lease agreements of existing occupants as a buyer?

(2) . who can provide a loan for such 4-6 unit multi-family homes?  and do they accept less than 20% down?

(3). Do I need to or put in another way, is it advisable open an LLC to put an offer and go through the property buying process?

(4). Looking for CPA & Attorney who understand real estate to help me in this endeavor as heard in BP podcasts to always have a team - any referrals local to  California if possible.

Appreciate your guidance !!

1.) You will get lease agreements

2.) Contact local banks. I doubt you will find anything with less than a 20% down payment. 25-30% is more likely

3.) You don't need an LLC to make an offer.

@Nathan Ku

Welcome!  What area are you looking to buy in?  California or elsewhere?  I have contacts for CPAs and attorneys in San Diego and Los Angeles if you're willing to work with folks down south, shoot me a private message if you want the names and what kinds of services you're looking for if you know.

@Josh Dillingham - Thank you. I have heard that with rentals, there is a lot of risk if you go as a private owner versus as an LLC.

@Katie Lepore  , I am looking for California investment at the moment.  I am looking for a Tax strategist who can advice on tax strategy. I will pm you.

(1). since I am looking for rentals - would I get access to lease agreements of existing occupants as a buyer?

You can request the lease agreements from the seller. You should do your own due-diligence that the rent the landlord is charging is at least reasonable. If it is below market rent - there may be an opportunity to increase it when you acquire the property.

(2) . who can provide a loan for such 4-6 unit multi-family homes? and do they accept less than 20% down?

You can get a conventional mortgage if the unit is 4 or less. If the property is 5 units or more - you may be requires to get a commercial loan or a portfolio loan.

(3). Do I need to or put in another way, is it advisable open an LLC to put an offer and go through the property buying process?

You are not required to create an LLC to make an offer on a property.

(4). Looking for CPA & Attorney who understand real estate to help me in this endeavor as heard in BP podcasts to always have a team - any referrals local to California if possible.

I would recommend @Katie Lepore as the attorney.
For the CPA - you are not required to have a local CPA. However, you do need a CPA that is familiar with real estate taxation and the state laws of California.

@Basit Siddiqi Thanks for answering some of my questions.

for a commercial loan - who would be some of the lenders that you can identify are popular amongst the investors?

 @Nathan Ku  

1. Yes, you will get a rent roll, lease agreements, and all other applicable due diligence. When entering the contrat you can also choose to request estoppels, which is a document that the current resident signs verifying what they pay in rent, their deposit & other details of their lease. 

2. It would be very challenging to purchase 5+ with 20% down but if you did FHA financing you could purchase up to 4 units for 3-10%.

3. You can purchase the property in your name initially and then move into an LLC if you so desire.

Good luck! Multi-family investing is a great way to build long-term wealth!

(1). since I am looking for rentals - would I get access to lease agreements of existing occupants as a buyer? - You can and should request existing leases and rent rolls. 

(2) . who can provide a loan for such 4-6 unit multi-family homes? and do they accept less than 20% down? - 4 units or less can secure conventional residential financing (if you want to live in one unit you can even get an FHA loan). 

(3). Do I need to or put in another way, is it advisable open an LLC to put an offer and go through the property buying process? - If you want to live in one unit I would not get an LLC because you'll lose your homestead exemption and your capital gains exemption when you sell. Traditional banks typically don't loan to LLC's so you could consider making the purchase in your name directly then transfer the deed to the LLC if the terms of your mortgage will allow this. Talk to a professional before moving forward with this strategy. 

@Tiffany Hoffman Thank you for the advice. what would be your recommendations of places to invest in for MFR?

@Emily Pierce Thank you for answering my queries, it helps. How would one classify Class A versus B/C ? Is there a method to this classification? and would you consider investing in C type MFR?

@Nathan Ku sure! Class A are typically newer and in high-income areas. B would be more of your working-class neighborhoods and usually make good rental properties. C would be older homes in less than desirable/ low-income locations. I personally don't have any rentals in class c neighborhoods but many investors do! It's completely up to you the amount of involvement, renovation, risk tolerance you have with likely low income or credit challenged tenants. As a rule of thumb for myself, I don't invest anywhere I wouldn't live myself. Again, this is just me...I recommend sitting down and assessing the risk and return you're looking for and go from there.  

@Emily Pierce - you have great points there and I totally agree with you. I have some scars and lessons even with renting to Class-A folks now that I look back and put a classification in perspective.