Which FACTS are Most Important when investing in Multifamily

Question

I’m taking the advice of those around me and starting with a Multifamily 4 unit in CT.

Hey BP COMMUNITY,

I want to begin my journey in CT because I know the area and I can use this investment to help my nearby family while generating some appreciation. This will serve as a financial & educational launch pad for larger commercial properties.

I’ve had some difficulty pin pointing the right information for a multi family unit: these have been some of my questions.

What year does everyone recommend the building to have been built?

How would you do a proper walk through of a multi unit without knowing the ins and outs of the construction and rehab industry?

How do you go about finding correct annual financial records of the property? Or would you suggest just using a BP calculator on these smaller deals?

What functionalities of the house need to be checked? Boiler, fire and sprinkler etc...

Who would you have check them?

How would you hedge/prep yourself from not being able to refinance given a market turn?

Would you recommend using an FHA loan for a 4 unit versus placing it under an LLC to avoid some risk and gain some tax benefits?

Lastly, how have you found your past properties? I believe the bigger the better but my capital can only go so far.

I know this is lengthy. But I appreciate any insight into these questions. If anyone wants completely point me in a different direction...I’m all ears.

I’m thrilled that there is a community like this. Look forward to making this long journey a reality thanks to all of your help.

Adam Detig · Answer

Hey Zak. Real estate investing is a massive entity to learn about. Fortunately you don't have to know it all. You can learn about specific areas (like multifamily) and you don't even have to know everything about it. Just know who to ask.

In terms of your questions:

Year built: varies so widely with location you won't be able to get a precise answer. Don't worry too much about age as an inspection will tell you what you want to know.

Walk through: If you don't know what to look for, pay someone who does. This can be a friend who knows construction or a contractor. Walk through with them and get their feedback and learn what they are looking for.

Finding financial records: this is your realtor's job. Have him get the financials from the seller. No realtor: just request them yourself.

What needs to be checked: Everything. This is the purpose of paying an inspector to comb through everything. Don't know one? Get a referral from your realtor.

Hedge against market turn: This comes from knowing how to analyze a deal. Practice practice practice. Finding a "good" deal means there is wiggle room in case there is some change in market.

FHA or LLC: If you are living there, forget the LLC. It's either you get the tax benefits for your LLC or your personal taxes. FHA is a tool. If the numbers work with a FHA, then use it. If not, then don't.

I have found my properties online such as realtor.com. And from my realtor sending me stuff.

Good luck.

Subbie Kaur · Answer

@Zak Blechman

Hey Zak,

Welcome to the investing world! I definitely agree with your approach to wanting to learn and educate yourself before making larger investment decisions. This will allow you to figure out exactly what strategy and path you want to go towards. Multi-family units are a great way to start!

What year does everyone recommend the building to have been built?

- This is a concern for a lot of new investors. Personally, as long as the foundation is in good condition and the property overall is in good standing, age doesn't matter.

How would you do a proper walkthrough of a multi-unit without knowing the ins and outs of the construction and rehab industry?

- Look at all mechanicals ( find out their age, conditions) since this can be a bigger cost

- Foundation is a big one!

-Roof ( find out when the roof was placed, the condition)

- Electric/ Gas ( find out metering situation) if they are not separately metered that will cut into the cash flow.

- Windows( for multi-unit properties if there are a lot of windows that need to be replaced this can costly.)

- Overall repairs needed

In conclusion, research the area and find a good property manager or inspector and make sure they look more into the things above and anything you know of that is a high-cost repair!

How do you go about finding correct annual financial records of the property? Or would you suggest just using a BP calculator on these smaller deals?

- For taxes( look into county assessor site, all tax information will be there)

- Insurance ( you can easily get a quote for property insurance)

- Rents and if there are utility costs, the seller should be able to provide you this information.

What functionalities of the house need to be checked? Boiler, fire and sprinkler etc...

- Check EVERYTHING. You want to make sure that what your buying is a good investment.

Who would you have check them?

Get an inspection. You can tell an inspector what you want to be checked specifically!

Would you recommend using an FHA loan for a 4 unit versus placing it under an LLC to avoid some risk and gain some tax benefits?

- Look into different options and what gets you the best cash flow, lowest costs and a good rate will allow you to have a more positive experience. I would personally to keep your options here and do your research. There are a lot of good options for lending.

Hope this helps, GOOD LUCK:)

Adam Detig · Answer

Basically, yes. Make sure it cash flows enough. My minimum is $100 cash flow per door but I like to see at least $200 per door. This allows for if there is a down turn, you can drop rents if needed and still not be bleeding money.

You are at the same place I was a year ago. You are planning well and hoping to go bigger (8, 16, 32 units) eventually. House hacking with be a great place to start. You will figure out the process, set up your systems, learn the lingo, and begin to network. Networking is key, both in the business world, and personal world because the fastest way to grow into the bigger units is to use other people's money. That comes from people knowing what you are doing, trusting you based on your results, and you showing them good opportunities for investing.

Good luck

Zak Blechman · Answer

@Adam Detig

Thanks for taking the time to answer this post. Really great feedback that I’ll be using.

You mentioned it’s all about analyzing a property and making sure there’s some wiggle room during economic times of higher rates and fewer loans. Are you saying “make sure the property cash flows and you can wait out an economic trough”? And if so is that a viable plan with a small 4 unit property that I’d be using to grow equity and put into an 8,16,32 unit etc? (By viable I mean a a fast enough process to scale my units)

Thanks for your straight up answers.

Which FACTS are Most Important when investing in Multifamily

Which FACTS are Most Important when investing in Multifamily

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