What do I need to know before buying my first multi family?

Question

I'm thinking about selling or doing a refi on my rental home and getting the largest MF complex that I can afford (most likely 6-10 units.) I'd like to do this soon but I know that education will improve my returns. What books should I read, what topics should I familiarize with and search on BP? What are the biggest pitfalls? I'm relatively uneducated in tax, finance, and running a complex.

Matthew Crivelli · Answer

Here is a little advice- don't listen to tenant sob stories then feel bad and rent to them. They will smell the weakness and take full advantage of the situation. Do full screenings on everyone credit and back round and make sure to have a professional draw up the lease agreements.

Brad Hammond · Answer

Hey @Corbin Lane, congrats on scaling up! When looking at properties of any size, just look at the numbers. If you do the math, the math will tell you what to do. You should know the neighborhood numbers (cap rates, rents, property values, etc.) inside and out. I was just rereading "What Every Real Estate Investor Needs to Know About Cash Flow" by Frank Gallinelli and that does a great job of going over all the formulas involved in real estate investing.

Also, keep in mind that commercial lending is slightly different than residential so know the nuances of that and talk to a few good commercial lenders. Since you already have an investment property I'd be willing to bet you know more than you are giving yourself credit for. You got this!

Corbin Lane · Answer

This would be an obstacle for me. My equity is most of my net worth. I was hoping to do 20% down but could scale back my goals to accommodate 25%.

Corbin Lane · Answer

@Brad Hammond thanks for referring me to that book, it looks interesting. I noticed that the author started his own deal analysis app and I might try that as well.

@Matthew Crivelli thanks for the advice, I'll keep it in mind.

Julio Gonzalez · Answer

I agree with @Brad Hammond - "What every real estate investor needs to know about cash flow" is an excellent book for newer real estate investors!

Bonnie Griffin Kaake · Answer

@Corbin

@Corbin Lane You may make it easier for yourself if you can do a 1031 exchange into the property. That leverages your equity from the original property and then add what you can to the downpayment. Keep trying and maybe the 1031 exchange service will have some good advice for you as well. Once you have closed the transaction, take advantage of the tax and cash-flow benefits of a cost segregation study...this could give you a sizeable cash-flow in taxes you will not have to pay going forward. You can do this, don't give up.

Mary M. · Answer

Suggest you connect with a good commercial RE agent and a good commercial mortgage broker as funding is different.

You will need 20-25% down, 6-18 months PI or PITI reserves and net worth equal to or greater than loan value.

You also need to prove experience as a LL

the book mentioned above is great :)

What do I need to know before buying my first multi family?

What do I need to know before buying my first multi family?

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