Single Family or Apartments? First investment suggestions please
Member since 2018 · 15 posts · 7 votes
Single Family or Apartments? First investment suggestions please
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Property Manager · Lansing, MI · Member since 2015 · 170 posts · 59 votes
7y@Bridget Scileppi my first deal was 2 mobile homes on private land bought with the parks. These deals have the advantages of low cost barrier to entry but have a moat around them because for most mobile homes not in parks financing is a bit trickier to come by. Scrubbed around and found some private financing for the remainder that I wasn’t covering. All in price was $45k and the monthly income is $1250, even with expenses, capex, debit cost, taxes, Andy insurance I net $600 a month for both trailers. From there I bought a 4 unit and now looking to scale a bit larger from there.
Hope to purchase either more mobile homes, mobile home park, ACF, or multi family. Living in rural Michigan you have to be willing to be flexible and willing to put the work into learn how to crunch the #’s, then actually crunch the numbers and lastly to actually learn how to manage the different type of properties.
If you ever have any other questions please let me know I would be happy to meet up and talk about real estate.
Thank you,
Drew
13 Replies
- Property Manager · Lansing, MI · Member since 2015 · 170 posts · 59 votes7y
@Bridget Scileppi my first deal was 2 mobile homes on private land bought with the parks. These deals have the advantages of low cost barrier to entry but have a moat around them because for most mobile homes not in parks financing is a bit trickier to come by. Scrubbed around and found some private financing for the remainder that I wasn’t covering. All in price was $45k and the monthly income is $1250, even with expenses, capex, debit cost, taxes, Andy insurance I net $600 a month for both trailers. From there I bought a 4 unit and now looking to scale a bit larger from there.
Hope to purchase either more mobile homes, mobile home park, ACF, or multi family. Living in rural Michigan you have to be willing to be flexible and willing to put the work into learn how to crunch the #’s, then actually crunch the numbers and lastly to actually learn how to manage the different type of properties.
If you ever have any other questions please let me know I would be happy to meet up and talk about real estate.
Thank you,
Drew
- Flipper/Rehabber · Charlotte NC · Member since 2017 · 5 posts · 5 votes7y
When you're just starting out it will depend on what you have to work with. How strong is your network of lenders, how much you have to put down etc.
For example: A 100 unit apartment building will require a lot more money down and bigger renovation budget, if repairs are needed, than a single family residence. But if you have a strong network of bankers, hard money and private money lenders, you might still be able to work it out. If you can, why wait 5 years to acquire 100 rentals when you can do it right off the bat.
If rentals are what you're trying to get into, I think you should run the numbers on every deal you come across, as you find them. If it makes you money and you can get it financed, then do it. Don't worry about what it is.
Hope that helps. Feel free to shoot me a message if you have any other questions.
Aaron Jennings
Husband / Father / World Traveler / Life Coach / Online Content Creator / Real Estate Investor
#FreeingFamilies #FreeingPeople
- Flipper/Rehabber · Charlotte NC · Member since 2017 · 5 posts · 5 votes7y
@BridgetScileppi You're welcome!
I am in the same boat as you, but looking to invest in Michigan from out of state. Some things I've come to note are that multifamily properties appear to require 25% down compared to 20% down for a single family. Also, with a lot of the properties being fairly outdated, total square footage and the amount of disrepair you're dealing with could significantly increase the rehab/update expenses on larger multi-unit vs a small single family. Also, take a look at the city or municipality requirements for municipal inspections. I looked at Kalamazoo and they are required and good for either 28 months or 40 months depending on the requirements you meet, and appear pretty stringent. If you bought a property in bad shape and couldn't afford all the needed repair to get it up to code, you could be up the creek early in the race. Still learning myself so hope to see some good info on your thread. Thanks and best of luck!
- Real Estate Consultant · Brighton, MI · Member since 2013 · 607 posts · 251 votes7y
@Bridget Scileppi @CJ Wine There are pros and cons to both. It depends on your long term goals. How long do you plan on holding on to the property? Short term (5+ years) then single family units are the way to go. For longer term plans, MF and/or apartment buildings work well. I own single family and MF units here in Michigan and help investors shop for and purchase everything from single family to commercial apartment buildings. I purchased my first Michigan property while living in NJ. Having a contact you can trust is critical to your success.
I wrote a blog about a client of mine, a first-time investor who is purchasing her first MF unit in Westland, MI. I give lots of number breakdowns. I believe you would find this quite interesting, so PM me for the link. There are lots of great areas in Michigan where an investor can purchase income property under $125K. There was a duplex in Westland that listed and sold the same day for $79K. One side had a long-term tenant and the property was in very good condition. Completely turnkey, sold in a matter of hours. So investors are grabbing these great properties and new ones come up all the time. In fact, now is the best time before the Spring market kicks in. Feel free to PM me for more info.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes7y
Originally posted by @Bridget Scileppi:
My husband and I are new to investing in Michigan and appreciate all feedback. I am in the gaining knowledge phase and would love to hear what you invested in first - apartment building or single home? Why?
Welcome to the site Bridget. I always recommend that new investors start off in the 1-4 unit space. The financing on residential properties is so much better than on commercial properties. As you only get 10 residential mortgages it's always a good idea to use those up before putting up tons of capital on bigger deals that will require a bigger cash output.
- Rental Property Investor · Vicenza, Italy · Member since 2017 · 70 posts · 43 votes7y
Welcome @Bridget Scileppi, my oppinion is it's all about whta you have available and your goals. I jumped into a 10 unit for my first deal but that's just because I'm an overseas contractor so I had the funds. Plus I was in San Diego for a year which gave me the opportunity to fly back to Ohio to look around the area and build a team I could use. If it's all about your cash I'd say don't just rely on the 20-25% if you're looking to get a little value add. Fortunately I didn't over extend myself with the purchase as I've been spending a decent amount in remdeling and random repares that have came up over the last few months. At first the rents were covering almost everything but with a few evictions and one tenant leaving I'm now back to using my own money but the lonterm rent raises will pay it back in time.
I kinda feel I'll have more to play with and the ability to grow a little quicker once this one is back in the green with the value add completed. Then I'll work on pulling money out to put into other deals equal to or larger. Granted I also came back overseas so again I'm not as worries about the money as long as long term it'll all pay off which I feel it will. I'm no professional so it's just my oppion and it's the hand I'm playing at the moment, we'll see this year.
Good luck
- Member since 2018 · 15 posts · 7 votes7y
@James Wise- I am from Cleveland, Ohio - I appreciate the advice. Do you suggest a well written business plan before taking the next step? Currently working on this as my first step. @Alex Bacon - working on a business plan and need to make goals more concrete as you mentioned. We looked at a 4 unit property with foundation issues and much more work than I believe we should get into for our first property. Appreciate the information.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes7y
Originally posted by @Bridget Scileppi:
@James Wise- I am from Cleveland, Ohio - I appreciate the advice. Do you suggest a well written business plan before taking the next step? Currently working on this as my first step. @Alex Bacon - working on a business plan and need to make goals more concrete as you mentioned. We looked at a 4 unit property with foundation issues and much more work than I believe we should get into for our first property. Appreciate the information.
No. Don't see what purpose that'd serve. You are embryonic right now. Get a deal done 1st then see where things go. Your business is gonna shift & mold as you grow & gain experience.
- 7yEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 999 posts · 1k+ votes
Hello @Bridget Scileppi,
I believe that the property type is not important. What is important is whether the property meets the following three criteria:
- Sustained profitability
- Likely to appreciate over time
- Located in an area with acceptable business risk
The property that best meets the above criteria is the property you should buy. Let the numbers be your guide on property selection, not any preconceived bias. Also, remember that ROI is only a snapshot in time, an estimate of how the property will perform today, not 5, 10 or 20 years from now.
So how do you determine which property type to buy?
Before I continue, understand the relationship between jobs and sustained profitability. The relationship is pretty simple: no jobs, no rent. A rental property is no better than the jobs around it. Let's start with location considerations.
Location
Some location characteristics to watch for:
- Long term major employer outlook, both the market segment(s) and the specific companies. How did they do in the last crash? Also, the average life of a S&P 500 company is 15 years. You have to assume that the current major employers (unless they are government or utilities) will die off over time.
- New business relocating to area - Unless new businesses are relocating to the area, the area is or will decline, as will your rent and property value.
- Population growth - Population trend is an excellent barometer. If people are leaving a location, the long term outlook is bad. If people are moving to a location, the prospects improve.
- Per capita income growth - If the increase in per capita income is not greater than inflation, incomes are going down.
- Taxes - High taxes are a direct hit on profitability. This includes income tax, property tax and any other kind of tax.
- Cost and time to evict - Tenants know the eviction laws and if they know it will take months to evict them they are more likely not to pay the rent. This can be mitigated by the tenant pool.
- Rent control - If governments are usurping the rights of property owners, look somewhere else.
The point is, only buy where you can meet the three criteria.
Target Tenant Pool
Once you have a location selected, it is time to select the key employers and market segments who that will do well in the foreseeable future. Once you select the employers, you can determine a tenant pool that best meets the following criteria:
- Has stable employment in a market segment that is very likely to be stable or improve over time. These are the target employers you selected.
- Pays all the rent on schedule
- Takes care of the property
- Does not cause problems with neighbors
- Does not engage in illegal activities while on the property
- Stays for many years
I can go into more details on tenant pool selection if you are interested.
Once you know your target tenant pool, determine the property characteristics that will target them:
- What type? Condo, high rise, single family, duplex, single story, two story, etc.
- What configuration? Two bedroom, three car garage, mud room, etc.
- Location - Acceptable access to the target tenant employers?
- Rent range - What rent range best matches the target pool?
Summary
Instead of deciding on a property and hoping it will meet the three criteria, do the homework, starting with the location, and let the target tenant pool determine the property.
I hope the above helps.
FERNWOOD Team, KW VIP Realty520 Reviews
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