I live in Southeast Michigan and I have found a $69k triplex through a real estate agent's MLS listing that I'm keen on. Two of the units are rented out and one is vacant, which I intend on moving into. I'm single with no kids so that living situation works itself out. Plus, I'm less then 5 minutes away from work!
The house has new flooring, new water heaters, furnaces, and wiring for each unit. So it sounds like the house itself is in pretty good shape but I still need to see the place for myself.
Anyways, I have heard that the area draws poor tenants who are flakey on rents - I work with someone who owns two properties in the same neighborhood and he has had to go to court and fight for delinquent payments, which he ended up losing. So that sounds like a major drawback. Because he hasn't been able to maintain steady tenants, he can't afford the mortgages and he's foreclosing on both. To me, it sounds like this neighborhood is a no-go.
What are others' thoughts? Does anyone have any general recommendations on assessing if a multi-family property is worth the price, even in a crappier neighborhood?
The most important thing is to screen your tenants very well. Make sure there income is atleast 3 times the rent a month. Have decent credit etc. you will stand a better chance. Certain areas will have a higher turnover/non-payment rate you just have to account for it.
Whats you numbers? Gross rent/expenses. Account for everything utilities, trash, insurance, maintenance, mortgage and vacancy. I'm sure more of the seasoned guys will be along with percentages for you. I've been trying to pay attention on here but it hasn't sunk in yet.
Hey @Cyle Lublin , which City is it in? Being that you may be living there, it may give you a bit more room for error and provide a great learning experience. I am not in the banking industry, but I believe you may be able to get favorable lending terms if it is your Primary Residence. Don't quote me on that.
I am in the Property Management Industry and would agree with @John Whittle that tenant screening is very important. Also, make sure they fill out an inventory checklist upon move-in. As long as you have a sound lease, your tenant can be held accountable for damages. It is also important for the Landlord to make sure that they are holding up there end of the deal and keeping the property up.
Thanks @John Whittle I appreciate the input. These are things I have definitely considered. I wonder if there's data somewhere to provide local vacancy rates? @Joshua Lawrence I believe you are correct that I get favorable lending terms since I'll be living in whatever multi-family property I buy. Oh, and the property is in Monroe...low taxes and city service costs. I've talked to two lenders who said that I can qualify for an FHA loan (as long as the seller agrees to it) with much less down required (about 5%) than a conventional. Quicken Loans were requiring me to put 25% down since they believed it was an investment property...they didn't trust me, haha.
I just found out today that the third unit has been occupied and an agent told me that I can't see the property now. Is that legitimate? Or are they scheming to take the property for themselves? I'm going to look at two other multi's today in Monroe. There just doesn't seem like there's a big inventory available for multi-families.
Most time owners don't want tenants to know they are selling or don't want to disturb them with a lot of people walking through. You will only get to see if you have an acceptable offer.
Maybe you could put a "Upon Inspection" contingency in the offer.
I'm in Michigan as well and have gone through several properties that had tenants in them. Your agent and the sellers agent should be able to work this out.
Being an owner occupied is a huge bonus for you as far as financing goes...even if this deal doesn't work out its great to be able to take advantage of those terms.
As for your buddy, issues are bound to come up if your at it enough ( in my opinion) but like others have stated, screening is vital! If he was lax on that just to get in rented then that probably contributed to the problems you mentioned. Vacancy and legal costs should be a part of your expense calculation anyway...if you account for those and the property still makes sense than I think that will ease a little of the worry.
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