Hey you, over there with the multi...what are you looking at?

14 Replies

Hello BP!

I am curious to know what are some of your "red flags" when looking for a multi-family, duplex, triplex, fourplex, 100 plex?

It would be nice to see a basic list, so throw anything out there.

Thanks

Wow, I think you asked a really open end broad question. You could take the answer in a lot of directions. I guess the main thing is your expenses as the Landlord.

What utilities do you pay?

What does the tenant pay?

What about trash pickup?

Property landscape cost?

Heating/AC, hot water, roofing, windows, doors, plumbing issues, and electrical. There was a podcast a few weeks where I think Ben Leybovich explained that there are some Multi family apartment buildings that will never make money due the age, and utility setup of the building.

I should rephrase the question, but thank you @Jarrett Harris!

Please share an experience you personally had when purchasing a multi family and suddenly, it was a deal breaker.

What are your deal breakers?

outside of the numbers not making sense... Mold and foundation problems.

Deal breaker items will vary among different investors. Some of mine, that I can think of off the top of my head:

- Numbers don't make sense (obviously)

- Property is on leased land

- Landlord pays tenants' electric and/or gas (caveat: if this could be submetered and the numbers still made sense after that expense, I'd consider it)

- One or more tenants has an unreasonably long lease with low rent

- Older property (to me, older is pre-1950s) - just don't want to deal with all the outdated plumbing, electrical, sewer lines, windows, etc. Heck, I'm getting to the point where I don't want anything older than about 1980.

- Significant deferred maintenance issues (like Brianna said, major mold or foundation issues, for example. I'm fine with a property needing paint, having some overgrown plants, etc.)

- Having one or more Section 8 tenants might be a deal breaker. We haven't run across that as an issue yet, so I'm not sure how I'd handle it if everything else about the property was good.

That's all I can think of right now. This is, of course, assuming that the property is in an area of a town that I would be comfortable buying in, otherwise add "area has bars on windows, lots of graffiti, etc." to my list of deal breakers.

Deteriorating brickwork, roofs needing immediate replacement...any imminent major repairs that aren't factored into the price.

@Andrew LeBaron

Oh okay....I walked away from a 4 unit building that was priced right, but when I actually viewed the building the bedrooms were so small there were no closets. Also the building was marketed as fully rented, upon viewing the building it was only %50 rented.

Second property was marketed as having a %15 cap rate...I didn't even know what that meant at the time (about a year ago). I passed on the building because the price was too high to have a leaking roof as well as other things. The major killer was this 4 unit building only had 4 electrical meters. No common meter. That was the BIG deal breaker.

Both buildings are still for sale.

@Andrew LeBaron

When owners tell me their operating expense ratio is about 20%. They swear that is what it always is. I immediately call their "bluff" and move on.

The biggest deal breaker would be on the numbers. Most performas were created by brokers who didn't consult with the sellers on the actual numbers. So there's definitely more properties out there on inflated performa prices than on actual numbers.

Originally posted by @Andrew LeBaron :
I should rephrase the question, but thank you @Jarrett Harris!

Please share an experience you personally had when purchasing a multi family and suddenly, it was a deal breaker.

What are your deal breakers?

I will chime in on this one, because I walked away from a deal after a $900 inspection.

Here are the stats on the deal

Price $137,000

4 plex, 2 bed/1 bath units

fully occupied

$2000/month in rental income

The place looked fine from the outside, but the inspection revealed severe water damage to the ceilings of all of the units from a bad roof. The roof would need to be completely replaced. The ceilings in the units were so bad that there were huge areas where they sagged down. Also the termite inspection found a virtual infestation of termites in the storage rooms at the back of the building. They would need to be torn down and rebuilt. There were several large electrical issues, two of the bathrooms had major water damage around the bath tubs, and there was a ton of other deferred maintenance.

Also the current owner had just moved in tenants in one of the units, and their stove did not work, and they had no hot water because their hot water heater was broken. Also, after meeting one of the tenants, I was pretty sure this was not a tenant I wanted to inherit, since he lived like a slob with his apartment covered in garbage and old food.

Anyway, I didn't walk, I ran away from that place.

Wow @Anthony I'm here in the valley as well. I'm in Tempe currently looking for a multi.

@Andrew LeBaron the only deal breaker I have is if the seller isn't realistic on the value of their property based on what's discovered during due diligence. Otherwise, there's a solution to anything.

I'll say the numbers, location and no one bedroom apartment for me

I echo what @Joe Fairless said, but we do rule out properties with chillers because of the increased Maint costs. We don't like flat roofs, but will consider them on a strong deal.

The big deal killer is a bad neighborhood with no change in sight.

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