Buy and Hold Questions

2 Replies

Hi Everyone,

I am new to BP and real estate investing in general.  Except for my introduction post a couple days ago, this is my first substantial post on BP.

Around this time when I have a full-time job after graduating law school next year, I plan on acquiring 1-2 SFRs or multifamily properties and utilizing the buy and hold strategy.  While I have been listening to podcasts, watching webinars, and reading the forums and blog posts, I still have a few questions regarding the strategy:

1) For those who are making their first investment, is a SFR, rather than a multifamily, a logical first step? I originally thought a SFR would be a good chance to get my feet wet in real estate investing but as I learn more, the benefits of multifamily properties are very appealing to me.

2) For a buy and hold property, is there a rule of thumb on how much should be attributed to rehab costs before bringing in a tenant?  What would some of those low budget costs be (shutters, carpeting, paint, appliances, etc.)?  

3) For your first property, would you recommend taking on a partner who can finance 100% of the deal or obtain a conventional loan?  I understand that the answer to this question can vary based on everyone's personal circumstances. 

4) On a few webinars, I have seen Brandon Turner use a BP calculator to evaluate a deal.  For the "variable landlord paid expenses" (e.g. vacancy, repairs and maintenance, capital expenditures, management fees, and other fees), is there a rule of thumb for what the percentage of these costs should be?

5) What is the one piece of advice that you wish you knew before buying your first buy and hold property?

I appreciate any input that you could provide.

Ian

Welcome @Ian Livaich  !  I have 30+ properties and am an agent working with investors to acquire properties

1. It depends on your area and what kind of tenant class you want to deal with. A areas/tenant = lower cash flow but easy to manage. B area/tenants = moderate cash flow but more time spent managing the property. C area/tenants = higher cash flow but a lot more work dealing with tenants and properties. So in your area A/B tenants may only want SFH and C tenants may only want multifamily. In my areas (Chicago/Milwaukee) it is a dense urban environment where it is common for A/B tenants to rent an apartment. But you go 30 miles outside of the city and only C tenants want apartments because the A/B can afford a SFH.

2. This is property specific and tenant class specific.  Buying in a A area and trying to attract an A tenant?  You will probably need granite/ss nice finishes.  Buying in an area with C tenants?  Granite/SS would be a waste of money when basic laminate will be sufficient

3.  Depends on your qualifications.  Buy and hold is a long term play, so if you are going to partner you need to make sure they are somebody you want to be with for 10+ years.  I have 3 partners and two of them I talked with for over a year before deciding to work together.  If I were you I would do it on your own and have 100% control until you know exactly what you are doing  

4.  This depends on the property, area, and class.  A brand new high end property in an A area is going to be different than one with deferred maintenance in a C area

5.  Final a good local agent who works with investors.  They will teach you all this and offer advice and insights that are worth their weight in gold

Brie,

Thank you for the warm welcome and taking the time to answer my questions. I have only been on BP for 3 weeks, so I appreciate you helping me with these "low hanging fruit" questions. Your answers were very insightful. I definitely overlooked the property class factor and will focus on learning more about this topic. Before investing, I will be sure to learn more about the property classes in my local market and speak to a local agent. I think B/C classes will be my best bet early on as that appears to match up with my SFR/Multifamily interests.

Thanks again.

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