Are vacant multi-family properties a good investment?

Question

I was wondering if anyone has had success purchasing vacant multi-family properties? If I got a hard money loan to cover purchase and renovations, then rented it out, and then refinanced it, would that be a good strategy?

Zachary Ware · Answer

This value add strategy can be an enormous wealth-building machine but the value add part can be very different on different deals. This can be buying a 70% occupied property, putting new paint on the outside, doing some landscape, upgrading the interior of units with new flooring, counter, etc, and increasing rent and occupancy. Buying a completely vacant property sounds like a whole different beast and there are a lot of questions you need to get answered. A few that I think of instantly are:

- Why is it vacant/Are there soil issues/Is there anything hazardous about the property itself/how long would rehab take and the property starts to produce income, are there large outstanding liens/easements on the property?

A benefit of rehabbing multifamily units is that the property still produces cash flow while you renovate some units. You will want to make sure to have ample reserves with fully vacant property. But with risk comes reward, you could get a deep discount with a fully vacant unit if you have the experience and team to turn it around.

John Casmon · Answer

The strategy works but you need to ask the next question. How do you mitigate risk when using this strategy? Here are three things to consider:

1. Buy low and ensure a healthy spread - You'll want a sizable gap from your all-in costs to your ARV
2. Have plenty of reserves - You won't have ANY cash flow coming in so you'll need plenty of cash on hand
3. Understand refi terms - how long does the lender want the property to be stabilized before they let you refinance?

Good luck!

Stephen Brown · Answer

I know a guy here in Toledo who got started in real estate doing exactly this: buying rehab needed multifamily properties, fixing them up, selling them off to then buy bigger rehab needed multifamily properties, and then growing from there. He now has 1000 units across two cities. I'd say it's a great way to get started because of the power of refinancing on the back end.

Richard Loniewski · Answer

even better if they need a lot of work, if you get it for cheap fix up and rent you can build solid equity in the property and cash out for a big payday. That's the only way I buy multi families.

Tyler Burks · Answer

Value add multi-family properties can be great investment opportunities. Of course, there are a number of factors to consider like location, market rate rents, vacancies, rehab costs and what you can truly buy the property for. But, if those factors line up well and you can get a multifamily property that needs rehab in a market where the demand is high for rentals I would say go for it.

Ned J. · Answer

First question to ask.... why is it vacant? There can be LOTs of reasons and you better be sure you dont snatch up something that is vacant for a very good and very expensive reason.

Michael Smythe · Answer

Depends on acquisition price

Fred Watson · Answer

Great advice! Thank you!

Scott Mac · Answer

If you do this:

OWC (???)

No Stab-Loc's or similar and etc...

Sewer Cam inspection to see condition of main line onto property.

Roof condition (how many are on the building re getting a refi on it somewhere down the road--2 or less).

Bring a multi-family inspector and walk every unit, every roof the entire grounds.

Existing liens, easements, is it condemned by the city or going into condemnation, unpaid back taxes, unpaid water or electric that will flow to a new owner, etc...

Just my 2 cents.

Are vacant multi-family properties a good investment?

Are vacant multi-family properties a good investment?

Most Popular Reply

10 Replies