Questions to ask on an 8-plex
Member since 2024 · 22 posts · 8 votes
Questions to ask on an 8-plex
Most Popular Reply
Joshua ChristensenPro Member
Real Estate Broker · Albuquerque, NM · Member since 2015 · 285 posts · 232 votesGood morning @Chris Kittle,
This is an important question and good on you for asking. things missing in your list (everyone manages differently, so take it with a grain of salt)
Vacancy rate
Turn over
bad debt
legal fees (evictions as needed)
accounting fees for professional tax prep
maintenance
Property Taxes
Sales Tax on PM fees (In NM, this is charged, not sure about where you are)
Reserves for replacement CAPEX - furnace, water heaters, ac, roof, parking lot, etc.
Admin, software, advertising, etc.
Cost segregation study for accelerated depreciation capture
As for your loan. Even though rates are high right now, there is an allure to variable rates every time rates are in a down cycle. That is something to consider. On commercial loans, it is not uncommon to see 25 year terms or balloons in 5-10 years.
Look for loans with lower prepayment fees if you refinance or sell early.
On an 8plex, a local / regional bank or credit union may have favorable terms with rates, term and fees.
Best wishes to you.
33 Replies
- 1yJaycee GreenePro MemberReal Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
Hey Chris! I work with MF developers across the country walking through the same type of projects. Shoot me a connection request/DM to talk about 1:1.
- 1yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
that's a big one to start with. not to say it can't be done, but it would be a lot if you've never owned anything before. have you looked into house hacking?
here are some questions off the top of my head. do you have a professional representing you? is it on market or off? why is the owner selling? how many units are occupied and how many are vacant? are the tenants in good standing or are some behind? are they on leases or month to month? are the rents at or below market? does it cash flow now? could it cash flow with rent increases? are rent increases realistic?
- Member since 2024 · 22 posts · 8 votes1y
Quote from @Nicholas L.:
that's a big one to start with. not to say it can't be done, but it would be a lot if you've never owned anything before. have you looked into house hacking?
here are some questions off the top of my head. do you have a professional representing you? is it on market or off? why is the owner selling? how many units are occupied and how many are vacant? are the tenants in good standing or are some behind? are they on leases or month to month? are the rents at or below market? does it cash flow now? could it cash flow with rent increases? are rent increases realistic?
Thanks for those great questions! I am a busy W-2 professional with a paid off house so I'm not worried about where I'm going to live. I also don't have time to personally manage a complex like that but I have identified a property manager that charges 10% of rent to manage the units. He comes highly recommended and I have spoken to him personally and feel comfortable moving forward with him. As for your other questions:
It is currently on the market and has been so for several monthsI don't have anyone representing me yet...trying to learn as much as I can before taking that next step with a realtor
I don't know why the owner is selling
I don't know the standing of the tenants
Rent appears to be at market
Assuming 10% vacancy rate, my calculations show that it would indeed cashflow.
Again thank you for posting those questions as those are some of the things that I need to ask the seller when I reach out.
- 1yBradley BuxtonBusiness MemberReal Estate Agent · NV · Member since 2023 · 1k+ posts · 715 votes
Getting the rents the tenants actually pay will be very important, do they all pay on time, and, what are their current leases. This is your income for the property. Some selling agents and owners will artificially inflate rents. You likely will not be able to get this info until you're under contract.
Second look at the expenses and see if there were any (or not) major updates to the property such as roofs, pipes, electrical panels, tree trimming, sewer laterals, or paving. I'm in the Reno, NV area and while it's not a high fire risk in many areas insurance companies are looking very closely at the mechanicals of buildings before insuring properties or before writing a policy.
- Real Estate Consultant · Columbia, MD · Member since 2017 · 160 posts · 55 votes1y
Hi @Chris Kittle,
Your list covers the essentials! Besides what you've mentioned, here are a few additional common expenses to consider:
- Landscaping (especially if there’s grass or common outdoor areas)
- Pest control (sometimes needed for multi-family properties)
- Legal/accounting fees (for lease updates, tax filing, etc.)
- Vacancy reserves (for covering costs during turnover)
I can assist in helping you find funding, LMK!
- Member since 2024 · 22 posts · 8 votes1y
Thank you so much for your help with this. This is more great info to put down on my list of things I need to ask when I approach the seller.
- 1yAdam BartomeoBusiness MemberReal Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
There are several expenses that you are missing:
1. Vacancy
2. Pest
3. Lawn
4. Trash
5. Maintenance
6. Reserves
Bartomeo Property Management4.7150 Reviews - Member since 2024 · 22 posts · 8 votes1y
Awesome. Thank you so much for this. It will help me put everything into perspective.
- Member since 2024 · 22 posts · 8 votes1y
Quote from @Trevor Finn:
Hi @Chris Kittle,
Your list covers the essentials! Besides what you've mentioned, here are a few additional common expenses to consider:
- Landscaping (especially if there’s grass or common outdoor areas)
- Pest control (sometimes needed for multi-family properties)
- Legal/accounting fees (for lease updates, tax filing, etc.)
- Vacancy reserves (for covering costs during turnover)
I can assist in helping you find funding, LMK!
Thank you so much! This will definitely help!
- 1yGino BarbaroPro MemberRental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
If you are unsure of costs, I would download some Offering Memorandums in your market and compare costs. I would also talk to property management and community banks in your market for what costs are.
Cap ex is not repairs and maintenance. Repairs and maintenance areas operating expense. You also have to set aside money for legal/accounting.
Get their T12 and rent roll to see what costs they currently have.
For loans, it depends upon the size. You may be better served going with a community bank or credit union.
Good luck
Gino
- Member since 2024 · 22 posts · 8 votes1y
Thank you so much. This is very helpful!
- JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes1y
An earlier post mentioned "vacancy." That is a "vacancy and credit" imputed expense even if you don't have any. Typical is 5% to 10%, depending on market. Imputed expenses are important because they will be included as Operating Expenses when a lender appraiser does its appraisal, and also when the lender calculates its Debt Service Coverage Ratio.
Regarding pest control, it's not just monthly roach spraying. You might also have rodent control and termite protection.
For due diligence, make sure you get a two-year payment history for all tenants. Your contract also wants to require an Estoppel Letter from all tenants. That is usually executed a few days before closing. Your contract should allow you to cancel the contract without penalty and full earnest money refund if you can't get all estoppel letters or if problems are revealed in them. Estoppel letters are signed by each tenant and counter-signed by the owner as true and correct. They say the attached lease copy is true and correct and there have been no written or verbal changes from the contract. The letter confirms the amount of security deposit and the "paid through" date for rents. It also affirmatively states the tenant has not prepaid any rent except the current month, including any type of "last month's rent in advance." It states there are no unresolved issues between landlord and tenant regarding repairs, Fair Housing issues, or anything else. If you don't get estoppel letters, you could be in for some nasty surprises.
- Real Estate Agent · Austin, TX · Member since 2024 · 14 posts · 18 votes1y
Have you thought about your exit strategy? Exit strategy to me is just as important as the purchase. For example, can you make one of the units short term rental thereby increasing the noi and thereby the value? Condo the units out? Or maybe just buy and hold. Will you be improving the units over time? If so then you should have a serious conversation with your cpa to figure out the tax benefits of pursuing one strategy over another?
- 1yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Chris Kittle make sure you understand the Class of the property, so you can use appropriate vacancy + tenant nonperformance percentages.
We recommend:
Class A 5%
Class B 10%
Class C 20%
Of course, we base this on our Metro Detroit market, so you may want to validate for the market for this property.
Logical Property Management4.9460 Reviews - 1yAlan AsriantsBusiness MemberReal Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
How are the heating units displaced in the property? Is it one giant water heater and heater or does each unit have their own heater/water heater?
What is the condition of the roof, siding, plumbing, electrical, etc?
Do all tenants pay on time? Have owner provide proof of payment (likely no one will give this to you until you are under contract)
Alan Asriants - New Century Real Estate 591 Reviews - Member since 2024 · 22 posts · 8 votes1y
Quote from @Drew Sygit:
@Chris Kittle make sure you understand the Class of the property, so you can use appropriate vacancy + tenant nonperformance percentages.
We recommend:
Class A 5%
Class B 10%
Class C 20%
Of course, we base this on our Metro Detroit market, so you may want to validate for the market for this property.
Thank you so much. This is definitely something to consider.
- Member since 2024 · 22 posts · 8 votes1y
Quote from @Alan Asriants:
How are the heating units displaced in the property? Is it one giant water heater and heater or does each unit have their own heater/water heater?
What is the condition of the roof, siding, plumbing, electrical, etc?
Do all tenants pay on time? Have owner provide proof of payment (likely no one will give this to you until you are under contract)
Thank you so much. That is all great advice and I will add it to my list of things to ask!
- Member since 2024 · 22 posts · 8 votes1y
Quote from @Denise Evans:
An earlier post mentioned "vacancy." That is a "vacancy and credit" imputed expense even if you don't have any. Typical is 5% to 10%, depending on market. Imputed expenses are important because they will be included as Operating Expenses when a lender appraiser does its appraisal, and also when the lender calculates its Debt Service Coverage Ratio.
Regarding pest control, it's not just monthly roach spraying. You might also have rodent control and termite protection.
For due diligence, make sure you get a two-year payment history for all tenants. Your contract also wants to require an Estoppel Letter from all tenants. That is usually executed a few days before closing. Your contract should allow you to cancel the contract without penalty and full earnest money refund if you can't get all estoppel letters or if problems are revealed in them. Estoppel letters are signed by each tenant and counter-signed by the owner as true and correct. They say the attached lease copy is true and correct and there have been no written or verbal changes from the contract. The letter confirms the amount of security deposit and the "paid through" date for rents. It also affirmatively states the tenant has not prepaid any rent except the current month, including any type of "last month's rent in advance." It states there are no unresolved issues between landlord and tenant regarding repairs, Fair Housing issues, or anything else. If you don't get estoppel letters, you could be in for some nasty surprises.
Thank you so much. That's extremely helpful. I really appreciate it!
- Member since 2024 · 22 posts · 8 votes1y
Quote from @Mary Jo Carruthers:
Have you thought about your exit strategy? Exit strategy to me is just as important as the purchase. For example, can you make one of the units short term rental thereby increasing the noi and thereby the value? Condo the units out? Or maybe just buy and hold. Will you be improving the units over time? If so then you should have a serious conversation with your cpa to figure out the tax benefits of pursuing one strategy over another?
Thanks so much. This is something I haven't given much thought to yet. I appreciate the advice!
- Real Estate Consultant · Columbia, MD · Member since 2017 · 160 posts · 55 votes1y
Quote from @Chris Kittle:
Quote from @Trevor Finn:
Hi @Chris Kittle,
Your list covers the essentials! Besides what you've mentioned, here are a few additional common expenses to consider:
- Landscaping (especially if there’s grass or common outdoor areas)
- Pest control (sometimes needed for multi-family properties)
- Legal/accounting fees (for lease updates, tax filing, etc.)
- Vacancy reserves (for covering costs during turnover)
I can assist in helping you find funding, LMK!
Thank you so much! This will definitely help!
@Chris Kittle you're welcome 🙏🏾
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Chris Kittle:
Quote from @Nicholas L.:
that's a big one to start with. not to say it can't be done, but it would be a lot if you've never owned anything before. have you looked into house hacking?
here are some questions off the top of my head. do you have a professional representing you? is it on market or off? why is the owner selling? how many units are occupied and how many are vacant? are the tenants in good standing or are some behind? are they on leases or month to month? are the rents at or below market? does it cash flow now? could it cash flow with rent increases? are rent increases realistic?
Thanks for those great questions! I am a busy W-2 professional with a paid off house so I'm not worried about where I'm going to live. I also don't have time to personally manage a complex like that but I have identified a property manager that charges 10% of rent to manage the units. He comes highly recommended and I have spoken to him personally and feel comfortable moving forward with him. As for your other questions:
It is currently on the market and has been so for several monthsI don't have anyone representing me yet...trying to learn as much as I can before taking that next step with a realtor
I don't know why the owner is selling
I don't know the standing of the tenants
Rent appears to be at market
Assuming 10% vacancy rate, my calculations show that it would indeed cashflow.
Again thank you for posting those questions as those are some of the things that I need to ask the seller when I reach out.
I'm confused Chris....
You found a PM who's specialized to this exact market and property type. Highly rated and you feel great after connecting with them.
Why wouldn't you ask them to sit you down and give you the "download" on everything you should know to do this?
Ask them if $500 would be fair enough for a day or few hours of education.
If they are the quality PM you say they are, there is nobody who is going to know more or give it to you straighter then them.
- Member since 2024 · 5 posts · 0 votes1y
Quote from @James Hamling:
Quote from @Chris Kittle:
Quote from @Nicholas L.:
that's a big one to start with. not to say it can't be done, but it would be a lot if you've never owned anything before. have you looked into house hacking?
here are some questions off the top of my head. do you have a professional representing you? is it on market or off? why is the owner selling? how many units are occupied and how many are vacant? are the tenants in good standing or are some behind? are they on leases or month to month? are the rents at or below market? does it cash flow now? could it cash flow with rent increases? are rent increases realistic?
Thanks for those great questions! I am a busy W-2 professional with a paid off house so I'm not worried about where I'm going to live. I also don't have time to personally manage a complex like that but I have identified a property manager that charges 10% of rent to manage the units. He comes highly recommended and I have spoken to him personally and feel comfortable moving forward with him. As for your other questions:
It is currently on the market and has been so for several monthsI don't have anyone representing me yet...trying to learn as much as I can before taking that next step with a realtor
I don't know why the owner is selling
I don't know the standing of the tenants
Rent appears to be at market
Assuming 10% vacancy rate, my calculations show that it would indeed cashflow.
Again thank you for posting those questions as those are some of the things that I need to ask the seller when I reach out.
I'm confused Chris....
You found a PM who's specialized to this exact market and property type. Highly rated and you feel great after connecting with them.
Why wouldn't you ask them to sit you down and give you the "download" on everything you should know to do this?
Ask them if $500 would be fair enough for a day or few hours of education.
If they are the quality PM you say they are, there is nobody who is going to know more or give it to you straighter then them.
Let’s put it this way…I’m so green that I don’t know what I don’t know. Utilizing the years of experience from the people on the forums will allow me to talk intelligently with a realtor, the property manager, the seller, and so forth. I really do appreciate all of the comments folks have made and it’s clear that they have systems in place and I hope that knowledge will aid me in my endeavor.
- Real Estate Agent · St Petersburg, FL · Member since 2019 · 321 posts · 182 votes1y
You're already talking to realtors , property mgrs, owners and so forth in the forums...
No true professional will hold it against you that you are green. Heck, they will be happy to impart their knowledge upon you.
If the PM you mentioned is who you said he is, have a chat with him sooner than later. Compensate him for his time. Get his thoughts on what makes for a solid property in the area as well as what makes for a good operator (in his opinion).
- Member since 2024 · 22 posts · 8 votes1y
Thanks for the advice. I will indeed do that!
- Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes1y
Good on you for making the jump into multifamily. You will still have an electric bill even if tenants pay their own unit. You will likely have common area lighting (interior and exterior), perhaps heating and cooling too.
But my biggest advice, make sure you properly comp the property. Make sure you are not overpaying. Just because you can afford it doesn't mean you should. High down payments will make almost any deal cashflow, but equity wise you don't want to be starting off underwater.
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