Beginner getting into a 10 unit out of state.

13 Replies

I am a brand new investor looking to buy my first property and came across a 10 unit out of state that has a really good looking P&L. There are minimal repairs needed and the property seems to be in really good shape in a not so good area. The upside is the rent costs per unit are below average for the area and the property itself seems cleaner than most options. I know the risk given the current rental moratorium. It costs 450k and is showing a 40k a year net. I would obviously use a property management company to manage the property. 

My questions are..

1. Is this is a smart idea to utilize the majority of my investment capital to go straight into a 10 unit out of state? 

2. Wheres the best place to try and get a loan for a 10 unit like this? I knot it needs to either be a commercial loan or a private capital partner. 

Thanks ahead of time for any wisdom you can provide. 

@Chad Rakestraw it is really hard to say given the limited information. I would say be careful putting all your eggs in one basket. Maybe you can JV the deal with a few partners, so you can diversify into other buildings or apartment syndications. Can you improve the NOI? Can the renter base afford a raise in rents? Is your competition able to charge back for utilities?

Local banks need to be willing to loan to an out of state investor. You can find some that will, but you main need to find a mortgage broker. If you don't have loan experience, you will need to partner with someone that does. They will be also looking at net worth, and post loan liquidity.

Analyze the market fundamentals to see if it is a worthy area to invest. What will be your business plan to present to your JV partners...

@Chad Rakestraw

Nothing wrong with doing a 10 unit as your first deal in my opinion. You can get a local commercial loan if you are bankable. Work with a local agent or get a local connection who can help you with local banking relationships. 

Make sure you do your due diligence on the property and on the area and have a good PM to work with. 

Not rocket science but there are lots of ways to lose money when you don't know what you don't know. 

Given what you provided, You can go all in and purchase it or bring in a JV to lower your risk exposure. I highly recommend a local credit union for your purchase due to their ability to provide great lending terms and straight forward underwriting. You will be able to leverage that relationship for other future deals if you chose to stay in that market.

@Chad Rakestraw you say in a not so good area. This would be my biggest concern, considering its ur 1st property, out of state, and pandemic going on. Are you talking d class? Is the profit and loss actuals or just potential? I do like your ambition to start big, and I like owning 100% when possible. Wish you the best!

Hi Chad, the one part I'd call out is property management. I've spoken to countless fellow OOS investors who have given up on OOS investments b/c their property mgmt costs were way higher than expected and they went through numerous firms b/c they felt that they weren't trustworthy and/or nickel and diming them. 

In terms of going in on a 10-unit for your first deal, you'll likely get a variety of opinions. Me and my partner started w/ a duplex, then 4-plex and are now looking at a bigger # of doors know that we have our contacts down, processes and have gone through a bunch of lessons learned. That said, dont' let me discourage you, with the right grit, time and persistence, it's definitely possible and if the #'s make sense, the #'s make sense. 

Jumping off what others have said on this thread, perhaps you can JV w/ a local investor in that area who can go on-site if needed and take on the property mgmt aspect so that they also have "skin in the game" and aren't incentivized to overcharge.

Best of luck!

You actually see this property?  Relying on broker's descriptions or ProFormas usually don't work out well.

Remember brokers stop caring after it closes and you just are starting.

Originally posted by @Steve Morris :

You actually see this property?  Relying on broker's descriptions or ProFormas usually don't work out well.

Remember brokers stop caring after it closes and you just are starting.

 "Brokers stop caring after it closes???"  Sorry you had a bad experience or something but that's not a fair generalization.  I work very hard to ensure clients are extremely satisfied with their purchases and stay connected well beyond closing.  I know many other brokers that care far beyond cashing the check.  Just wanted to clear the air so other beginners don't have incorrect presumptions about brokers.

@Chad Rakestraw

I'd second what @Katrina Razavi said regarding property management. It burns a lot of OOS investors.

Please don't rely on seller proforma. Start interviewing PM's, ask them about the area, the class of tenant, the current and possible rent, vacancy and non payment of rent in this area. You need to focus on the team as an OOS investor before purchasing, especially this large of an investment.

Real estate is more about base hits than home runs. If there isn't really any value add opportunities, home runs aren't likely.

Remember we are all investors. No investor who owns a 10 unit that is churning out tons of passive cash flow is just going to let that go at a nice discount to the next investor, look deeper into the numbers. Is there a huge Capex bill right around the corner (roof, plumbing, electrical, etc) or are utilities not included in your estimates? There's likely something you are missing and it may not derail the deal but you have to go in with both eyes wide open.

"Brokers stop caring after it closes???" Sorry you had a bad experience or something but that's not a fair generalization."

Sorry, am a broker and see deals where brokers vanish after the sale.  Just the nature of our business.  I do keep in contact after closing since I've told people not to buy plenty of times.

My comment was in general that the broker gets paid at close, the owner is just starting to get paid.  Yes, a generalization, but as far as "fair", I've seen it happen.

OTOH - Buyer is not happy, you ever give back some of your commission?