First Investment Property

7 Replies

Hello Everyone,

I am looking at buying my first investment property. I have read the guides on this site and they have been very helpful. I have a few questions hopefully you guys can give me some insight.

I am looking at multifamily homes. I think it will be easier to manage a single property and it will cash flow more than a sfh 

When you look for a realtor do you look for someone with expertise in investment properties? I know several real estate agents but to my knowledge, they deal with residential properties.

Would you go through the bank for a conventional loan or use a mortgage broker or other source of funding? I am pre-approved through my bank but I see most people investing in properties are using a mortgage broker or other source of funding

Do you calculate exact expenses when looking at a deal? I'm running the numbers on a few properties to give me an idea but without knowing the exact expenses I can't be sure of how much it will cash flow. I use the 50% rule, look up the property tax, 3.5% interest rate and $2500 closing fee. I don't know how much the utilities and insurance costs

When you rent a unit out do you include utilities? 

What kind of cash flow would you expect from a multifamily home investment? 

Yes it is always best to deal with an agent that is an investor or has experience with investments.

Funding is up to you. There are tons of ways and they all work for different people. There is little functional difference between a mortgage broker and a bank. 

Call an insurance guy and ask for estimates. You want as much to calculate in as you can. Also calculate a few % for vacancies. 

Including utilities is more based on what is normal for an area. But certainly I dont do it because that is an unknown expense every month. 

Thank You Leah

Can I just ask an insurance agent for a quote on a potential investment property and give him the address? 

Vacancies are low in my area based on research, would 3% be a conservative number? 

Should I be considering setting up a business for my rental property from the beginning? From my understanding having a business but the loan in my name doesn't free me from liability but are there any benefits to starting a business? I am thinking of building a real estate portfolio in the future 

Hi @Tony P. These are all great questions. For your 1st MFU, I would suggest you team up with someone who already is doing MFU. This way you will see 1st hand all the ins-outs without taking on 100% of the risk (and you get free coaching at the same time). The other option of course is to pay for MFU training/courses. There are tons out there. I would suggest listening to Charles Dobens MFU podcast (US based but info is valid for Canada) and looking into Edna Keep's program. 

'Easier to manage a MFU'. This depends on your pt of view. If you have a 4 plex, that's 4 stoves, that can brake, 4 sets of tenants to deal with, etc. You get the point. The cashflow is usually better with MFU. 

Yes, when looking for a REA, find 1 that is an investor too. Not just focuses on working with investors. 

If you got pre-approved by a bank, then go that route. Although it would be good to start looking for a mortgage agent you can count on. At some point the banks will not lend to you. Building a STRONG relationship with a mortgage agent is important if you plan on getting more than 4 doors and if your own funds are limited. Some mortgage agents are better than others. As well, find an agent that is also an investor with multi-doors.  

For your calc's you should use actual numbers were possible. Keep in mind, the seller usually will present numbers in their favor, so take the numbers with a gain of salt. 

Include 

- utilities unless you are 100% planning on having the tenants pay, 

- 8.33% vacancy even if the area is lower, 

- % for capital expenditures (2-10%)

-% for property manager even if you plan on doing this yourself (8-15%)

-if you don't know an expense put in your best guess. Your REA should be able to you give you a estimate too. 

- etc, all the other normal expenses

In terms of $net profit/unit/month this is a personal choice. Some people are happy with $50/door, others want $100. For me personally, I target $100 np/u/m.

I think I got all your questions. Send me a mgs if I missed any or if you have further questions. Good luck. 

@Tony P.

You should work with a realtor/agent who is familiar with real estate investments and one who focuses on being a buyer agent instead of a seller agent.
This agent will be better suited to distinguish which property will make a better investment. He should also have a network of contractors, lenders, etc that you can tap into.

A mortgage broker is normally a middleman who will connect you with the lender. You may potentially have to pay a broker a fee for his search.

Originally posted by @Basit Siddiqi :

@Tony P.

You should work with a realtor/agent who is familiar with real estate investments and one who focuses on being a buyer agent instead of a seller agent.
This agent will be better suited to distinguish which property will make a better investment. He should also have a network of contractors, lenders, etc that you can tap into.

A mortgage broker is normally a middleman who will connect you with the lender. You may potentially have to pay a broker a fee for his search.

Hi Basit, 

Thank you for the advice

I am looking for a realtor in the Moncton area now with real estate investment experience that would be a good fit for someone getting started in real estate investing.

 

Hey Tony- welcome! Yep, there are investor friendly realtors out there. Keep in mind any realtor you speak with is probably going to tell you that they know all about investing- ask them a few simple, but specific questions and you will be able to sort out the jokers pretty quickly. 

Beyond that- my personal advice: don't rely solely on what anyone else tells you is a "good" investment or the proper way to calculate any expenses or returns. Sure, there are standards, but real estate is hyper local and what works in LA might not work in Baton Rouge. Also, every investor has different goals, resources and financial knowledge, these items play the biggest role in whether a deal is a good one or not. 

I've worked with many partners and clients on deals that other investors, especially here on BP, told them were not good, but those deals have put cash in their pockets and leveraged them in to more properties with no cash out of pocket. 

Do what works for you- the only advice I have for you is to make sure you have at least two viable exit strategies. If you do can do that, the rest is just noise!

Originally posted by @Corby Goade :

Hey Tony- welcome! Yep, there are investor friendly realtors out there. Keep in mind any realtor you speak with is probably going to tell you that they know all about investing- ask them a few simple, but specific questions and you will be able to sort out the jokers pretty quickly. 

Beyond that- my personal advice: don't rely solely on what anyone else tells you is a "good" investment or the proper way to calculate any expenses or returns. Sure, there are standards, but real estate is hyper local and what works in LA might not work in Baton Rouge. Also, every investor has different goals, resources and financial knowledge, these items play the biggest role in whether a deal is a good one or not. 

I've worked with many partners and clients on deals that other investors, especially here on BP, told them were not good, but those deals have put cash in their pockets and leveraged them in to more properties with no cash out of pocket. 

Do what works for you- the only advice I have for you is to make sure you have at least two viable exit strategies. If you do can do that, the rest is just noise!

 Hey Colby, thanks! This forum is great, there is a ton of information. I've been reading articles non stop in my free time 

I read an article about finding the right realtor. What I plan to ask them is if they have investment experience, if they have investment properties of their own. How many investment deals they have done in that last year. Maybe ask for some details about those deals. What do you think? 

Thanks for the advice, I will keep that in mind