Looking to invest in small multi family and need input.

22 Replies

I'm currently putting a plan together to get myself into multi family investing. I've picked two areas here in Memphis close to desirable schools. I can find duplexes, triplexes, and fourplex in both of these areas. My plans is to purchase, over the next 3-4 years, 4 duplexes in the $50k range. I will live in one side with my family while renting the other side. I do however need advice on getting financing on one of these. Based off of a $50k purchase price, was going to put $12,500 down and go for a 15 year mortgage on all of the properties as I acquire them. I understand that cashflow will be a little less. After 4 years my goal is to have 4 duplexes all cash flowing at $3.5k/mo for 7 units. Any input? I'm keeping an open mind?

@Gary Mariencheck this sounds like a solid plan. What kind of rent can you get for each unit on a $50k property? Seems like $500 net cash flow per unit would be almost impossible but I also do not know the Memphis market. Are you factoring in maintenance, capx and vacancy in your cash flow? If you can make this work it sounds like a fantastic plan and investment!

Jedd Braunwarth , this is gross before expenses. The units usually rent for $500-550 per side from what I've been seeing in my target areas.

Multifamily in the Memphis area especially duplex's under $100,000 are mostly in very undesirable areas due to the higher crime,vacancy and vandalism rates that come with them.  We have sold only a few products like this several years ago but the investment after about 9 months would turn into a nightmare for the investor.  

There is a reason most of the TK providers dont sell these anymore.  

The last one was for $59,900 with gross total monthly rent of $1,200.  Problem was the tenants never stayed long enough for the investment to truly perform like it should. So it was basically like buying a property for $60k with monthly rent of $600 or worse.

If your local in the area you might have a slightly better chance of making this work but still very slim. 

Good luck

AWESOME PLAN!

I'm executing your strategy as we speak. I purchased a duplex with an great rate of return. We are living in one side and renting out the other. I spoke with a generous lender who has approved us for another purchase, in which we will buy a 4 plex soon, if the numbers work. 

Mississippi is a rainier place than Phoenix. I HIGHLY suggest purchasing a multifamily with peaked roofing rather than flat...way too many leaks and roof maintenance.

Also, do your best to find units that are individually metered. This can be difficult in some smaller areas.

Last, I understand that price is important, but keep an eye open for properties near the universities, schools, shopping, and businesses. A multifamily in a rural area is a weak choice in my opinion.

My 2 cents, happy investing! 

@Gary Mariencheck those are some very inexpensive properties.

As far as your plan, it seems pretty solid. I am guessing that due to the purchase price being so low (below $50,000) that is the reason why you are going with the 15 year mortgages? If you are putting down 25%, your payment will be below what a single renter pays per month. That seems reasonable. 

The questions I have are utilities? Do the properties you are looking at have all utilities separate? Also based on rent and purchase prices alone, I would say that these are C class properties at best, so you will have issues with maintenance and problem tenants, so be sure to have good emergency reserves on hand. How old are these properties. There is a huge difference between a duplex built in 1985 and one built in 1905, especially if the second hasn't been updated. 

I am guessing you are looking in a relatively low income area? How do you feel about living in such an area?

The reason I ask is that I myself am doing the owner occupied thing in one of my 4 unit properties. It is located in a large city, but the area is lower income. I am single and from an inner city area, so it isn't too bad for me, but I don't plan on staying here much longer. If I had kids, I would have avoided this area all together.

Curt Davis yes I'm very familiar with the 2 zip codes I'm targeting. The first zip code is where I'll buy the first 4 duplexes because of the lower prices it'll be easier for me to acquire them and I'll be within 5 minutes from each one incase of any problems. Once I get these 4 purchased I'll move out of the one unit and purchase in the higher priced area. And either start this exact process again or try for small apartment buildings.
Anthony G. Yes, the properties are built in the 1950-1965 era. The area is lower income blue collar. Lots of construction(rehabs) and investing going on in the area. It is one of those Memphis neighborhoods where you can be in a nice area and the next street over can be questionable haha. The elementary school in the area rates one of the highest in Memphis though so you do have demand to get in the area. I have kids myself so that is why I want to move to this area. If I can get my kids into a great school and invest in the same area that would be great.

My suggestion would be to start networking with banks. Surprisingly it is difficult to finance the smaller amounts. It may be easier to overcome as an owner occupant, but I have trouble getting a refi on single family homes I have in that price range. 

Gary Mariencheck I like the idea of buying a duplex and living in one of the units. This is smart. After that I would recommend SFH instead of Duplexes. From what Ive learned from other investors duplexes can be tricky to manage and are not for the inexperienced investor. In the long run they may not perform as well as you think too. Also harder to sell as an exit strategy.

What neighborhood has $50k duplex's in Memphis with a top rated school?  

Originally posted by @Curt Davis :

What neighborhood has $50k duplex's in Memphis with a top rated school?  

 I am looking at Memphis city schools that rate at a 6 or above and/or schools that offer optional programs. 

Make sure you check the whole area out first as though the whole " optional school '' thing sounds like a good thing, most of these schools are centered in bad areas that you yourself would not want your family to live in or even attend school there.  

My overall opinion would be to stay clear of investments like this as no one I know is personally doing this and that to me should be proof enough that its not working. 

If you do decide to do it I wish you the best of luck!

@curtdavis

You forgot to point out that managing class C units is usually a great way to quickly learn everything that can possibly go wrong with tenants and properties; like an accelerated learning program...  😊

@garymariencheck

It's a good plan, but make sure you drive the neighborhood on a Saturday night to see if it's a location you would be comfortable having your family in. I'm currently rehabbing a class C apartment complex in Memphis while living on site.  It's fine for me, but definitely not a place I would have my family live.

Just my $.02

Erik

@Erik Nowacki

I grew up in the not so great area here in Memphis so yes I'm very familiar with the neighborhood lol as I still have many friends in the area and I grew up there myself. I've got pretty thick skin so I don't see those areas being a problem for me.  You are actually doing what I'm planning on building into with the Apartment complex. Wish you the best of luck on your complex!

Thanks to everyone's advice! 

Keep in mind that if you get loans that are meant for primary residences, there could be stipulations about how long you live there to keep the loan.

If you move forward with low income landlording, you may want to check out my BP podcast episode and my weekly BP member blog.

I think if you are comfortable living there and are willing to put in the emotional and physical work to keep things on track, you can be successful.

Michele Fischer Id love to listen ! Which episode is it? Thank you!

Hey Gary, Im a agent in east memphis, and I'm assuming that your looking into the east memphis area to invest. I also have a good bank that I refer my buyer too all the time. If theres anything I can help you with, please let me know.

"I grew up in the not so great area here in Memphis so yes I'm very familiar with the neighborhood lol as I still have many friends in the area and I grew up there myself. I've got pretty thick skin so I don't see those areas being a problem for me. You are actually doing what I'm planning on building into with the Apartment complex. Wish you the best of luck on your complex!"

@Gary Mariencheck

Congrats on your potential deal on those duplexes they sound like a gold mine with the right person or team behind it which is (YOU!! :) )and with you living in them you are right there to handle whatever problems that may come about...  I have stated the same things you said numerous times and I am glad someone else reiterated my same point. If you are from an area/neighborhood and still have friends and family in there it makes life/investing/managing properties in those areas/neighborhoods much easier to manage.

You will do GREAT!!!

 

"There are two primary choices in life: to accept conditions as they exist, or accept the responsibility for changing them."

I like to take the 30 year  mortgage, or as long as I  can get with private lenders, or seller financing, here are some of my reasons why:

-If I can depreciate the home for 27.5 years, along with the  mtg interest, I can reduce taxes further.  

-equity is not usable since the banks are not doing equity loans on Investment homes and the do not do cash out re-fi's, at lease here in Fl.

-more cash flow monthly to keep aquiring before the market rises more.   Now that I have 12, I am understanding the "ebb" or "flow" of operating capital and  how to easily keep 6 months reserves, it is all easier with more cash flow now, in a few years you can refi or pay extra principal if you like.  

Just my thoughts, thanks=)

@Gary Mariencheck I have a friend who bought a duplex many years ago.  He lived in one side and rehabbed it.   When the tenant on the other side moved, my friend moved in there and rented the rehabbed side.  He then rehabbed the other side and still lives there.  Over the years, he has been able to raise the rent to the point where the tenant pays for the entire mortgage, taxes, insurance and most of the utilities.  

You want to make sure that your investing matches your lifestyle.  If you have small children at home and a full time job, don't get into a massive rehab situation.  I've done local rehabs and had my son help out as he was able to.  After I dropped him off at college, I went for a massive rehab project across the country, relocating for a couple of years (at least).  Looking back, I'm glad I kept the investing activities in line with my family situation.  Doing a live-in rehab could be a great way to get your whole family involved, teaching your children new skills and trying out new colors/materials before deploying them in your rental units; just don't go overboard with the scope.

Are you a member of the Memphis Investors Group (MIG)?  If not, it's probably a good place to start.

Erik

I love your idea of going multifamily this was my plan as we'll because of the extra cashflows it allows but I would say for an investment property go with FHA loan because the rates are so low and do a 30 yr or 40 yr if you can because you want to stay as liquid as possibile and not tie all of your cash up into one property so if another investment comes along you have capital to do it . FHA is doing 96.5 percent financing with only 3.5 percent down payment down to a 580 credit score and they do it for multifamily 1-4 units also you can aquire as many as you want the only thing is that the first property must be owner occupied or be your primary residence

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