I joined this week and new to real estate investing - rental is the way I want to go. I found a 8 unit apartment building $400k and have about 40k to use. Learned at the webinar this week that I need 20% down - and will have to take another 40K in equity from my primary residence which makes me nervous. The numbers look good - net 2,000 after applying the 50% rule and then paying mortgage. Should I start small -a duplex, or take the leap with this property. Thanks for your advice!
Hello @Senia E Cuevas Welcome to the REI world ...Congrats on joining a fantastic community! starting out with an 8 unit apartment building is pretty tough to do as a new investor with just $40K. I would recommend starting with a smaller property because you not only need 20% down plus 2.50-4.50% closing costs and you need to have an emergency budget for repairs.
Best of luck to you moving forward!
The learning experience is great either way. I think if you get 8 units you should really try to network with other apartment owners in the area to help you out. There's a lot of little things that experienced investors can help you with that you don't know yet. If you don't have a network, maybe consider a duplex but then again... where do you see yourself in 3 years? Do you want a lot of units?
@Kai Kopsch Thank you for the advice... I am not too concerned with the challenge of managing as much as having no reserves after paying all the costs up front. I am still looking at duplexes and ever fourplexes - but I am ready to take action and learn on the ground!
@Stephen Brown I will go big or go home. I have a good paying job and a decent life but I want so much more. The goal is 34 doors with 12k income in 5 years - considering this opportunity because it will be a rocky start but a great leverage for growth in terms of equity and learning. I am still looking at duplexes and looking at ways to start that allow for cheaper lessons. I will be spending some time at the property location and have some personal connections there - will make sure to learn from landlords there - thank you for the great advice!
Don’t be scared about starting with an 8 unit or making a stretch to get it, but you need to do better than just apply the 50% rule. You should be able to get a P&L statement from the previous owners, or recreate one. Call your insurance agent and get a quote. Call the City and find out what the taxes are. Talk to a local property manager about realistic rent and maintenance cost expectations. Get an inspection. I like multis this size, but take all the guess work out of it before you move forward.
Based on the initial numbers, that is 50k per door, which is reasonable on average nationally.
However, you will probably need about 100k give or take with closing costs and possibly some light renovations post-closing.
Though I haven't seen this deal and its fundamentals, I want to encourage you to definitely go for with! You've got this!
Now, buying an 8-unit is not for the faint of heart, and I, 100%, advise you to find a great local property management company to help you with this before since it is your first you don't want to be managing this thing (believe me).
KEY 🔑: Welcoming the fact that you are insufficient is the humbling first step to take in order to WIN in this multifamily game. This should not be seen as a vulnerability but an opportunity for growth. Embrace it!
I like your enthusiasm and drive. Just make sure to work the numbers on your deal inside and out. Also go through some worst case scenarios and work out contingencies for them. If you can do that, then you should be good to go.
When I look at your situation, if you go all in with $40K and acquire the property, what happens if you get 8 broken water heaters at the same time or if all 8 tenants stop paying rent at the same time.
As long as you have a plan to mitigate that and it won't sink you, then go for it.
I hope you are very successful in your journey.
@Senia E Cuevas I’d be happy to connect and provide advice on specific questions.
Hi @Senia E Cuevas I’m new here myself and also trying to figure out where to jump in. I was just listening to BP episode 126 the other day and picked up a few tips as there’s a 7 unit in my area I’m evaluating.
The tips were to:
- close on the 4th or 5th of the month and you could get a credit at closing for the balance of that months rent
-since it’s a commercial deal the security deposits are different than in a standard residential deal and could offer you some leverage
-ask for reserves of deferred maintenance and see if you can use that to your advantage
As mentioned I’m new so I’d recommend doing more research, listening to multi family podcasts to pick up more tips or finding someone with experience to help understand those tactics first. Best of luck!