Rental Property Investor · Katy, TX · Member since 2013 · 417 posts · 171 votes
I am a new investor in TX. Does anybody have any input around whether it is feasible (or advisable) to start out with Multi-Family, as opposed to Single-Family?
I like the multi-family model more and in the long run would like to be more heavily-weighted toward multi.
What would be the major differences
in terms of startup needs between multi and single family?
Any and all input is much appreciated.
Involved In Real Estate · Saint George, UT · Member since 2015 · 10 posts · 18 votes
11y
Hi Jeff,
Just an FYI: some things I've learned about rental properties while running my property management company (small-140 doors).
Make sure you have strong positive cash flow or a good amount of income because you will have other expenses than minor repairs and cleaning.
This is what we have found:
Check the age of the hot water heaters (if they don't have an age write down the serial number and look up the model online for year built). Water heaters here usually last 15 years +-3 years. Replacing 4 hot water heaters if you have a plumber do it: $2800.
How old is the carpeting in each unit? 7 to 10 years use and then replace are good numbers for us. We figure $1.75 x the entire SF of the unit = replacement cost ($1500 to $2200)
How about the heating and air conditioning - here we us heat pumps mostly to heat and cool. They last about 17 years, and then the owner is spending $4000 to replace.
How old is the roof? Even tile roofs need the under layment replaced at about 25 years. Roof replacement is usually way more expensive than you think it will be. $5000 to $10,000? Not sure of numbers on this.
How does the exterior look? Exterior painting if hired out might run $5000 plus for a 4-plex.
How is the parking lot? Paving is expensive.
Is there any fencing? metal or plastic wonderful. Wood - bummer. If a wood fence makes it to 10 years here that's pretty good (rot and termites love wooden fences).
How old are the fridges? Renters are hard on fridges. We buy used ones to replace broken ones.
Dishwashers here only last 5 years due to our amazingly hard water.
As an example we own a mobile home used as a rental. We set aside $250/month for big expensive repairs. Probably a little more than we need but better safe than sorry.
Anyway, just our numbers for our area and the quality of the properties we manage (good quality).
Investor · GA · Member since 2014 · 22 posts · 2 votes
11y
I am struggling with the same question as the original poster. I do have one 5 BR student rental SF under my belt should be very strong (just bought in January) with projected 17% Cash on Cash return albeit on a 30 year personal loan. Walking distance to classes at SEC school.
However I am having trouble finding another one as deals are hard to find. My "investor specialist" has been showing me MF deals around other major universities and some look very attractive. I'm looking at a package deal now with all recently built units from multiple complexes. 10 units total. All walking distance to campus.
I have the cash for 20% down payment but it would be all I could do for a while (maybe a long while). I look at the cash on cash return and it is not a whole lot higher than my single 5BR house but that's apples to oranges I guess comparing a 30 year mortgage at 3.75% to a 20 year at 5.25% or whatever commercial is going for now. However a $1.25M purchase is a whole lot different than a 275k purchase! What kind of cash flow should one expect from a $1.25M multi-unit purchase with 20% down? What kind of mortgage terms will I get (excellent credit) and where is the best places to look (somewhere local to the properties?)?
I feel like I am good with analyzing $$ but do not understand apartments/condos like the old buy/rehab/hold houses. Almost everything I read says "the more under one roof the better" but is that really true? Is MF with 20 year mortgages really more about future resale with smaller cash flow while SF with 30 year about current cash flow and less about future resale?
Have you ever partnered up with family or friends on deals? I've heard horror stories about doing it but that may be a route I could potentially go
I would avoid it like the plague while you're just starting out. I'm only just starting, but I've done enough deals of other kinds with family and friends, and the golden rule there is that your friends will no longer be your friends after all is said and done. Maybe later, once you've got your system and your team up and running and you can afford to take a hit in case a friend hangs you out to dry. But on the first couple deals, I would steer clear.
Michell Prunty How do you plan to finance your first deal?
Hi Jordan,
2 options if you don't already have funds: 1) buy a fix & flip first, which is what we did. 2) buy a 2 - 4plex & move into it, which we also plan to do. My broker was talking yesterday about new programs that allow for 3% down and the lender will pay for your mortgage insurance...
There is also the strategy of buying 1, then taking out a line of credit on the property buy another. Didn't Josh write a book on this recently? "Invest with no to low money down?" You may want to check out the podcast if you haven't already. They've interviewed a few investors with different startup strategies.
Fort Wayne, IN · Member since 2015 · 22 posts · 2 votes
11y
Thanks, Don Glasgow and Dooreuhn Cee for the great perspectives. We're interested in purchasing MF property in Fort Wayne, Indiana and this information is helpful.
Fort Wayne, IN · Member since 2015 · 22 posts · 2 votes
11y
Thanks, Don Glasgow and Dooreuhn Cee for the great perspectives. We're interested in purchasing MF property in Fort Wayne, Indiana and this information is helpful.
Involved In Real Estate · Minneapolis, MN · Member since 2011 · 10 posts · 1 vote
11y
Hello Jordan and others,
I am also looking for multifamily investment 5 to 10 units to start with. I owned couple of SFH and was able to manage myself without spending lot of time. I look forward to this thread to get some basic details.
Some of the questions I have
- What type of locations should we look for
- what type of locations we should avoid
- What is the age of the building we should target or does it matter?
Anything else we should look for a person who is looking for his first Multifamily investment
Investor · Cabo Rojo, Puerto Rico · Member since 2015 · 95 posts · 53 votes
11y
@Jordan Decuir Go Multi Family! I started single family and spent a long time doing it (7 years) before I figured out the power of economy of scale and the ease of financing MF v SF. I do suggest that if you go this route you need to connect with an experienced investor who can help you avoid pitfalls in the process. Look for deals that you can partner on that are large enough to be profitable for everyone and worth your efforts. In this game a one hour phone call can be worth 200/ month in passive come on 200,000. Its all about scale and systems. I now partner with new and experienced investors on deals no smaller than 250 units and my base level of IRR is 30%. When I was doing singe family I was happy to make 6-10% return on money each year. By way of a specific example, lets say you own a 300 unit complex and discover the water treatment is out. This 60k expense to replace comes to a cost of 200/ door. This expense will not hurt your profits for the year or put you out of business. Lets say your water treatment fails on a single family or smaller multi family that 10-15k replacement expense is 10-15k per door and could easily suck up all potential profits for the year.
FHA is a great way to purchase up to four plex with only 3.5% down. You would have to live in one unit, but tenants would be paying most of the mortgage for you, if not all of it plus!