Hello BP members! I need your advice. I am a home owner and trying to transition into part time investor. I am thinking of purchasing a 3plex for $300k (market value $380k) in the Central Valley in California. 2 units are 3 bd/2ba and 1 unit is a 2bd/2ba. The current total monthly rents are $2950 which is low for the area and can be increased to $3200-3400. 

I plan to use a traditional 30yr fixed owner occupant loan. If I can go in at 5% down my COC return will be 17.3% (if self managed).

My current home has $50-60k in equity that’s not doing anything. I’m considering selling my home to fund the deal.

With just the info provided does this sound like a good investment? 

Any advice will be greatly appreciated.

Personally, I would look into two different routes.

1. Consider seller finances. This way you do not need the 20% down ($3000,000 x .2 = $60,000) in order to purchase a non-owner-occupied triplex. 

2. Don't sell your home, just get a Home Equity Line of Credit (HELOC). If you really have $60,000 in equity then you may be able to get a HELOC to cover a dow payment for the proper. This would come at 5-6% and only cost you the price of an appraisal (far better than paying real estate agents to sell/but your current home. Not to mention moving costs).

Hope this helps.

thanks for the info! I’ll look into seller financing!

Hi @Richard Xiong is the projected rent increase based on value you know you can add or projected appreciation? I would be careful to project, however if you can add value that is great! I too am from California and know how hard it is to find a deal. It sounds like you have found a great deal if it is in good shape. I agree with @Nathan DeJonge , use a HELOC if you can as long as you don't feel over leveraged. Best of luck!

The 17.3% COCR is based on projected rents based on realtor opinion and rentometer. if I base the COC Return on the current rent I would only be getting 5%.

@Richard Xiong Realtor opinion ? That has zero value bro! Rent ometer never saw the inside of the building it’s just a program that can’t calculate real world variables . Even if you can get 3200 rent every month the deal still sucks because your going to have over 300k in the deal . Not nearly enough rent coming in

Hey Richard, based on the numbers you presented that sounds pretty good, the owner occupant strategy with MFH is a great way to grow a portfolio quickly due to the low down payment.  Especially since lenders can do an owner occupant conventional loan for as low as 3% down. 

Is it going to be a 17.3% return with you living in one unit?  Or is that with all 3 units occupied by tenants?  

What area is the tri-plex in? Where is your house? Most likely the tri-plex will appreciate a lot faster than your SFH, I think it sounds like a pretty good idea.

Thanks for all the advice. I had to walk away because the realtor couldn't provide information regarding actual expenses/HOA and rentrolls. He kept making excuses about how he couldn't reach the seller. With too many redflags I had to move on. Thanks again.