I'd love to hear about people's first multi family purchase

29 Replies

I'm researching the idea of buying a multifamily myself, and I'd love to hear how everyone else got involved...how it worked out, mistakes they made, what they did right, etc. Thanks for sharing!

Hi Jared and welcome to BP. I flipped my first property and with the proceeds purchased a triplex rental property over in Garfield NJ. Shorty after that I purchased another triplex in Lyndhurst. I would say find a town you feel comfortable in and look for at properties. North Arlington is nice town and you can definitely find something there.

Good question Jared! My husband and I are considering purchasing our first duplex from a FSBO. So far we have done everything the same as a SFH as far as our due diligence is concerned. I.E. is the roof new, the utility sources, appliances, etc. Since the duplex is already rented we are reviewing the current leases. We do feel that the rent needs to be increased by $50 to $75/month so we are already planning the strategy for that and looking for ways to improve the property to increase the value. I hope this helps!

Liz

What I would say is to first determine if you want to purchase a multi-family unit that is occupied or one that is not occupied. There are pros and cons to both. With an occupied building you are already generating income or should be but its hard to make physical improvements tot he building and hard to get people to accept that you will increase the rents. You have to deal with landlord/tenant laws in your area. With an empty building certainly you can make repairs, improvements or modification far more easily but you do not have income until you get the place rented out. 

I would not say its a mistake but what if you have a 62 year old renting a part of your building. In some places they are entitled to a long term lease and a fixed rent amount. Just things you should think about when purchasing and rental unit whether single family or multi-family. There really is allot to think about but I am sure you will find out all you need. The more people live in your building the more things will come up for you to deal with. 

My first rental property was a historic 1913 duplex, over and under, 4 square style. Advice from other investors at the time concerning the price and age of the house were not very positive. I inherited one tenant and self performed a rehab upstairs. The house was in a good location near downtown.  I kept it rented for about 10 years and managed it myself. I gave it a little bit of cool factor with a few upgraded fixtures which got me top rents in the neighborhood. I had a mortgage and the duplex cash flowed only about $400/month. 

Mistakes: nothing major. Maybe I could have used a contractor for the rehab and gotten it fully occupied sooner. I could have also used a management company.  

Done right: Because this was my first property, I think self managing was a good learning experience. My tenants knew I cared about the property because they saw my face and heard from me often. Tenant screening and paying close attention to credit scores and ability to pay.

Fast forward to putting it on the market last year. I gave it a fresh paint job and it sold (occupied) right away. With a little appreciation and mortgage pay-down on the duplex, I was able to buy a 5 unit building (1031 exchange) and rehab with no mortgage. This is why I love real estate investing: turning $400 per month (with a mortgage) into $2,000 per month (free and clear) and getting a management company working for me.

Now I'm excited to have a free and clear property that I can leverage into something with even better cash flow.

Originally posted by @Gilbert Dominguez :

What I would say is to first determine if you want to purchase a multi-family unit that is occupied or one that is not occupied. There are pros and cons to both. With an occupied building you are already generating income or should be but its hard to make physical improvements tot he building and hard to get people to accept that you will increase the rents. You have to deal with landlord/tenant laws in your area. With an empty building certainly you can make repairs, improvements or modification far more easily but you do not have income until you get the place rented out. 

I would not say its a mistake but what if you have a 62 year old renting a part of your building. In some places they are entitled to a long term lease and a fixed rent amount. Just things you should think about when purchasing and rental unit whether single family or multi-family. There really is allot to think about but I am sure you will find out all you need. The more people live in your building the more things will come up for you to deal with. 

I don't think this can be over emphasized enough for newbies. You have to know your rental market (county and/or city).  Is there rent control?  Is there rent stabilization? Even without RC or RS some munis require just cause to terminate tenancy.  Just cause doesn't mean selling the building or buying it at foreclosure.  In some munis the tenants stay unless you remove the unit permanently from the rental market....and even then you have to buy them out.  My daughter lives in a 7 unit rent stabilized bldg, 3 of which have tenants from prior to 1990.  They are paying less than 1/3 of market rent, they aren't going anywhere and they are only in their 50s.  

Do your research and don't use your real estate agent to advise you on tenant issues.  Talk to lawyers, rent boards and landlord associations.  

Originally posted by @Gilbert Dominguez :

What I would say is to first determine if you want to purchase a multi-family unit that is occupied or one that is not occupied. There are pros and cons to both. With an occupied building you are already generating income or should be but its hard to make physical improvements tot he building and hard to get people to accept that you will increase the rents. You have to deal with landlord/tenant laws in your area. With an empty building certainly you can make repairs, improvements or modification far more easily but you do not have income until you get the place rented out. 

I would not say its a mistake but what if you have a 62 year old renting a part of your building. In some places they are entitled to a long term lease and a fixed rent amount. Just things you should think about when purchasing and rental unit whether single family or multi-family. There really is allot to think about but I am sure you will find out all you need. The more people live in your building the more things will come up for you to deal with. 

 This seems like some great advice.  I've lived in this area most of my life, so I know the area well.  I may not have thought of some of these things though.

Hello Jared,

Our first real estate purchase was an occupied triplex.  We had looked at probably a dozen properties and this was #3 on our list.  We couldn't get to an agreement on our favorite, #2 was a 5 unit and got pulled off the market before we could get the financing figured out, so we went in with a low offer for our third choice.  We got it for 2/3 of the list price and brought less money to the table than each of the two sellers did!  

This was 2.5 years ago, we have since added two more properties and will be up to 5 (16 units) shortly! 

Biggest thing I learned- Cash flow is more important than looks! This property isn't the prettiest outside or in (though we have made improvements) but it rents easily and has appreciated nicely in the short time we have had it.

Are any of your properties paid off? How long did it take? 

Originally posted by @Jared S. :

Are any of your properties paid off? How long did it take? 

 Nope.  But we started 2.5 years ago and have 30 year loans with low fixed rates.  If we get into a bind finding more financing after we exhaust all our conventional loan options, we may pay some off to be able to buy more that way if it makes sense at that time.  Right now, I'd be paying $47k to get $247 more per month, I would rather put that down on another property and get more cash flow, or pay down my own house first.

Originally posted by @Kelly N. :
Originally posted by @Jared S.:

Are any of your properties paid off? How long did it take? 

 Nope.  But we started 2.5 years ago and have 30 year loans with low fixed rates.  If we get into a bind finding more financing after we exhaust all our conventional loan options, we may pay some off to be able to buy more that way if it makes sense at that time.  Right now, I'd be paying $47k to get $247 more per month, I would rather put that down on another property and get more cash flow, or pay down my own house first.

 Thanks.  Just trying to figure out if people are making profit on their properties, or if it's more of a straight up "investment" at this point.

  We bought 2 side by side duplexes with one shared driveway 1 1/2 years ago, fully occupied wirh 4 tenants that needed to be rehabbed,   We raised everyone $100.after 3 months of owning the proprty.

the 4 units cashed flowed nicely But there was about $40,000 in renovation costs that were needed.  We have been rehabbing around the existing tenants for this 1 1/2 years.    We had to put all the positive cash flow back into rehabbing the 2 duplexes so we did not  see any profit.  We will not see any cash flow for another 3 months.  

Its been exhausting But it did get us into investing.  We have purchased 3 more duplexes since then.  Two duplexes were newish and turn key and so we are happy about those 2.  The 3rd duplex that we purchased  we are still renovating and will refinance when the rehabbing is completed and when it is  fully rented. 

What sort of money did everyone have to lay out to get these investments going?

Duplex in Mesa, AZ

Separately metered

$130,000

Rents $650 back and $750 front

Not the greatest investment, but I was new lol

Love it, and working on my next one!

My next blog post is about this exact thing.  I'll post the link here when it's done.

Updated about 3 years ago

As I got writing, I realized that I have way too much to say to keep it to one post. Here is the first installation: http://www.biggerpockets.com/blogs/6815/blog_posts/45137-my-first-investment-property-part-1-understand-the-numbers

Thank you for this post @Jared S. and thanks to everyone else who posted on this thread, this is inspirational as I definitely would like to purchase a Multi-Family in Washington DC in the next year or so, after I buy-and-hold my first couple SFH investments in Maryland.

Jared S. Great topic! I'm looking into purchasing my first multi unit in DC. My goal is to do an FHA. DC is super expensive so it will most likely be in a so so neighborhood. The tenant laws are ridiculous here so I'm a little nervous about that. Then I'll take the profits from that and purchase another multi unit. Good luck!
Originally posted by @Frantzces Lys :
Jared S.

Great topic! I'm looking into purchasing my first multi unit in DC. My goal is to do an FHA. DC is super expensive so it will most likely be in a so so neighborhood. The tenant laws are ridiculous here so I'm a little nervous about that. Then I'll take the profits from that and purchase another multi unit.

Good luck!

 Thanks!

This is something I've been interested in for a while.  I don't know many people who have done it personally, so I was hoping I could chat with some people who have done it before and learn a few things.  

We just purchased an occupied fourplex three months ago. We had a lot of upfront expenses to comply with the town, but this month we will see 500-600 in cash flow! It has worked out great having the units occupied because everyone is paying on time. I am sure if they were not paying this could have been very stressful...

Very great topic and feedback! I will be purchasing a MF soon with the help of an agent and lender I came across on this great site. I haven't heard anyone reference the sub meters. Will you cover utilities? 

Great thread!! Lot of good information!

Originally posted by @Andrew LeBaron :

Duplex in Mesa, AZ

Separately metered

$130,000

Rents $650 back and $750 front

Not the greatest investment, but I was new lol

---------------------------------------------------------------

Not quite 1% but very close.  So that's good.  Is the water also seperatley metered?  We pay the water and garbage on our first 2 duplexes but the heat and electric are all seperatley metered.  We are over the1% and we self manage.  We shouldn't have done it exactly this way but the key thing is that we did do it and it got us into real estate and we are really happy about that.  W e put 25% down and we had to put all the cash flow back into the renovation for the first 1 1/2 years.

Jared,

I was just considering my first multi-family and I wanted to mention zoning laws since I didn't see anyone say it yet. Be sure that what is offered as a duplex is actually in a zone for multi-family property. You might be buying an improperly rehabbed SFR. Don't believe the realtor.

Hi Jared, we are in the final stages of buying our first property, which is a a group of three duplexes. We are purchasing from a investor that is downsizing after her husband died. Got it before it hit the MLS, full occupancy and cashflows very nicely. We had been reseaching going into REI for about a year, have set up our LLC and taking the leap....

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