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
- 1yJoshua ChristensenPro MemberReal Estate Broker · Albuquerque, NM · Member since 2015 · 285 posts · 232 votes
Good 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.
- Member since 2024 · 22 posts · 8 votes1y
Thank you so much. This is very helpful!
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Chris Kittle:
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.
You missed my point.
Point is, by your own statement you already have the best resource available, at hand, to answer all of this, and then some.
That PM, if they are what you say they are, would be you're "Obi-wan".
PM's know a hell of a lot more than transactional agents do in vast majority. Ugly truth is the vast majority of agents out there have no knowledge, conceptual knowledge, or exceptionally limited knowledge in this regard.
A PM of worth at let's say yr7, has done hundred upon hundreds of listings, and dealt with a range of properties and tenant situations most transactional agents will never experience in their entire life time. Just a fact of the #'s.
Take my office for example, we have over 1,400 doors under management in just my office alone. We see more and experience more in 1yr than any transactional agent in our market ever does in their career.
We can answer those question from in-the-moment 1st hand experience, what is happening now, what happened before, and where it's all leading. From real-world, not theory or something we heard or read, but from DOING.
A transactional agent is best for exactly that, the transaction, how to in contract negotiations, how to get under contract, get best deal in contract and sometimes how to dig up and create a purchase potential or how to best sell.
if you want to know about operational wise, speak to those in the operations side of things.
- Member since 2024 · 5 posts · 0 votes1y
Quote from @James Hamling:
Quote from @Chris Kittle:
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.
You missed my point.
Point is, by your own statement you already have the best resource available, at hand, to answer all of this, and then some.
That PM, if they are what you say they are, would be you're "Obi-wan".
PM's know a hell of a lot more than transactional agents do in vast majority. Ugly truth is the vast majority of agents out there have no knowledge, conceptual knowledge, or exceptionally limited knowledge in this regard.
A PM of worth at let's say yr7, has done hundred upon hundreds of listings, and dealt with a range of properties and tenant situations most transactional agents will never experience in their entire life time. Just a fact of the #'s.
Take my office for example, we have over 1,400 doors under management in just my office alone. We see more and experience more in 1yr than any transactional agent in our market ever does in their career.
We can answer those question from in-the-moment 1st hand experience, what is happening now, what happened before, and where it's all leading. From real-world, not theory or something we heard or read, but from DOING.
A transactional agent is best for exactly that, the transaction, how to in contract negotiations, how to get under contract, get best deal in contract and sometimes how to dig up and create a purchase potential or how to best sell.
if you want to know about operational wise, speak to those in the operations side of things.
Thank you for the clarification. I see more clearly now.
- Rental Property Investor · Las Palmas de Gran Canaria · Member since 2014 · 220 posts · 256 votes1yIn addition to the solid list from Joshua,
Quote from @Joshua Christensen:
Good 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.
Typically LLC costs. These vary by region. That is basically an extra tax return, legal fees for setup, bookkeeping costs (if you aren't doing it yourself), possibly an umbrella policy. In some states it includes annual fees (like the 800usd for CA).
Turnover has both minimal repairs and cleanup. I wish it all came from the security deposit but that isn't how it always works out.Leasing. You also may have leasing fees, which can be as low as a few hundred fixed, but more often are a month rent. Also advertising costs.
On loans, I would hunt for an 5 year fixed interest only with low pre-pay penalties that you can refi when rates finally come down (hopefully).
Landscaping / snow removal is legit and is more viariable than you would expect. I've found you can negotiate a flat fee service at a slightly higher cost if you prefer consistency of cost over the risk.
Fees - not typically large but transaction and back fees can add up in to the hundreds, if not thousands depending on volume and plan type.
Income - additionals. We have late fees, pet fees (though less these days with the whole service animal abuse), parking fees in some cases, storage unit feeds, coin laundry revenue etc... it can add up.
Good luck. Don't be afraid to start with MF - although getting the loan might be tougher as they like to see experience.
- 1ySean GrahamBusiness MemberInvestor , CPA · Detroit, MI · Member since 2016 · 586 posts · 249 votes
Quote from @Joshua Christensen:
Good 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.
Good list. Yes, don’t forget the cost segregation study if you plan to take accelerated depreciation. Too many people forget to budget for this
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