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!
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.
Amazing @Brenda Yogyog - Congratulations on these new addition to your portfolio! I am on this road and have a clear path to follow. I am doing my homework - I am not ready to give up on this opportunity yet!
@Daniel Ziner - Following you now. thank you for your advice - that was the initial goal - but this opportunity just came about and I cannot let it go without trying my best to make it work!
@William Fritsche - Absolutely, I am securing a contact in the are that will show me the ropes. I am waiting for feedback on the ground before I jump. I think this is the most important part of making a deal work. Thank you!
@Carlos Ptriawan - The 2k is net after calculating 50% for expenses and then paying the mortgage. I am also using very conservative rent estimates for the property - estimating $750 for 1 bedrooms, and $1,000 for (2) 2 bedrooms and (2) 3 bedrooms - which are usually $150-200 higher typically.
@Salvatore Lentini Absolutely! I will welcome any advice. This property is in PA so I really will value your feedback. I am actually not sure how to DM someone here - feel free to contact me!
Real Estate Professional · Ashburn, VA · Member since 2014 · 29 posts · 15 votes
5y
Depending on the location and age of the building. I purchased 9 unit by myself. It has been many challenges for the property. I recommend to verify the condition of the property with professionals, a roofer and a plumber. Also check with the police department to see if you can determine the crime level of the area. Talk to potential renters if they are willing to rent at the location.
Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
5y
@Senia E Cuevas Our first property was an 8 unit-- that is not "too" big. Like @Anthony King, I have found that commercial lenders especially with a new investor and a first time property are probably going to want 25% down. Starting out with a commercial lender does have benefits! You'll be able to hold the properties in an LLC and you'll be starting a banking relationship that will allow you to grow your business. I also suggest that look into full featured property management software if you plan to self manage (which I do recommend-- so long as you lease great software)! We have been pleased with buildium.
@Yukiko Nakayama - That's amazing - congratulations! Thank you for the tip of contacting the police department and talking to potential renters... I had not thought of that!
@Jill F. Thanks for your feedback - I had not considered the benefits of a commercial lender relationship this early on... Also, I will def check out Bildium - I have heard great things!
Rental Property Investor · Placentia, CA · Member since 2019 · 39 posts · 10 votes
5y
@Senia E Cuevas
I’m new to investing and looking into apartments as well. All of the advice here are great and you should run your numbers to be as precise as can be. For example I thought 300/unit for insurance annually would be sufficient for a 14 unit, but my insurance quoted me 1k/unit. So if I can get an insurance to insure me on agreed upon value vs reconstruction, then it’ll kill the deal for me.
Also, if you go conventional loan, it’ll be 25% and 25 yrs. but you can look around for difference types of loan. I have the ability to do a 15% 5/1 Arm loan (which I would plan to refinance out once I could get the noi raised and stabilized). From what I’ve learned, reserves is key in order to hell you weather out rough parts.
Not sure if you could utilize your 401k like a self directed Ira, but I would try to do as much creative financing to boost your reserves to help with any unforeseen things that’ll come up.
Lastly be weary that you’ll probably expect a high vacancy the first year, it just happens. Run your numbers conservatively. I like to run my numbers with actual rent and then run different scenarios of rent increases to see if I’ll still be able to cash flow or if I’ll have to be paying out of pocket monthly for a period of time.
Investor · Schererville, IN · Member since 2014 · 7 posts · 0 votes
5y
@Senia E Cuevas
I think first you need to look at all of the numbers. Get detailed info. You always build in credits so you do not have to bring that much to the table. This would have to be financed as a commercial property. What is the total net? 24k?
If you like let me know and I can help you with going over the numbers.
Rental Property Investor · Atlanta, GA · Member since 2015 · 36 posts · 44 votes
5y
I love rolling the dice...on educated bets. But if you’re all in at $40K, I would take a step back. Our last two properties came with water lines leaking in the slab, mold and some rot in the structure. These were SFHs, so it was manageable, but had it been an 8-plex we’d be wishing for that $40k.
If you’ve had thorough inspections, and you have your operating budget buttoned down to the penny, a few unexpected expenses might be manageable. However, a new sewer line, roof, foundation issues, the hidden budget-killer called “mold”, or HVAC issues can make like unpleasant. Murphy: “what can go wrong, will go wrong”...when you are least prepared.
Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
5y
@Senia E Cuevas Hi Senia, welcome. As others have said make sure you calculate your numbers well based on the current rent roll to make sure it is a good deal. If the rents are under market, figure out how much it'll cost you to get them to market, do they need work etc. Validate that the tenants are currently paying rent, rent and eviction moratoriums are the law in many areas currently.
Watch Peter Harris' videos on YouTube regarding apartment buying and due diligence. Creative financing might be worth considering. Ask the seller if he'd hold a note for part or all of it.
Dont forget to factor in your home equity line costs into your calculations.
If the numbers work with some reserves for vacancy and repairs, ho for it and make it work.
@Jimmy Hung Amazing feedback, thank you! You have given me much to research - ie, self directed IRA. I was planning to use my 401k funds as emergency funds. I am getting the actual numbers from the county - taxes, talking to landlords, already understand eviction laws and def in search of a property management team to handle the maintenance piece. The Building is partially empty now - and has a few month to month rentals - I will budget vacancies and build a buffer. Thank you for your advice!
@Ken Naim Thank you for your feedback. I will def spend time on Peter Harris videos. Asking the seller to hold the note is a great idea - I did not think of it! Absolutely calculating interest on all the funds used into the costs - I need to be certain this is a good deal - as much as I can. Thanks for for your help!
...Not sure if you could utilize your 401k like a self directed Ira, but I would try to do as much creative financing to boost your reserves to help with any unforeseen things that’ll come up...
A Self-Directed IRA is a great vehicle to invest your retirement funds into alternative assets, however you can't commingle that with your personal investments. So since Senia intends to buy this investment property personally - she would not be able to utilize her retirement funds. All transactions involving an IRA must be "arms length".
Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
5y
@Senia E Cuevas Remember a good decision today is better than a great decision tomorrow. Once you have 80% of the information its time to make the decision. You can never be 100% sure as the unexpected will happen. Even if this investment doesn't give you the best results, you'll have taken action, got an education, earned experience, build equity, tax deductions, potential appreciation which all have value. The optimal return may have to wait till your second purchase
@Ken Naim I am doing all due diligence this week - Spending the weekend at the property neighborhood and assessed the risk - I would lose money in the short term, in the long term I will make it work. Worse case scenario - we will lose money but not compromise our livelihoods. Thank you! I will not get caught up in this loop - I will make a decision soon and live with the results!
...Not sure if you could utilize your 401k like a self directed Ira, but I would try to do as much creative financing to boost your reserves to help with any unforeseen things that’ll come up...
A Self-Directed IRA is a great vehicle to invest your retirement funds into alternative assets, however you can't commingle that with your personal investments. So since Senia intends to buy this investment property personally - she would not be able to utilize her retirement funds. All transactions involving an IRA must be "arms length".
I see, so to get around this, would you have to make the purchase by creating an LLC?