Rental Property Investor · NH · Member since 2015 · 76 posts · 16 votes
Im looking at multi-families and multi/commercial mix property here in NH. Of course Im finding the good area at a higher purchase price, higher rents. Sometimes not so high rents. And then Im finding the not so good area at a lower purchase price, lower to medium rent on average.
My concern is with the higher price, higher rent I'll be putting a higher down payment and wont leave me with alot of reserve for repairs...
I love the higher monthly cash flow on these though
Is there a formula you use or percentage for reserve per unit or monthly income. I know ROI and percentage of monthly rent I'll be putting away but Im talking about right off the get go.
Im just asking anyone who has experience with this?
Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes
10y
@Mary D. You can use a rule of thumb number like $100/unit/month but I think that's kind of dangerous. You don't say how large of properties you're looking at but if they are of any size and you don't have much reserves you are playing with fire to do that. You should take each of the major systems and decide how much work it needs immediately and if none when it will need to be replaced and how much it will cost. If you can't do that yourself find good contractors that can.
I just bought a property where I knew there was $30k in roof work that needed to be done but I planned to do it in 3 stages over the next couple of years. After closing my insurance company flagged it and said I needed to take care of it now. So I'm doing it in 3 stages in 3 months instead.
Stuff like that will happen so please think about the worse case and what you would do in that scenario.
Rental Property Investor · Northville, MI · Member since 2013 · 263 posts · 183 votes
10y
@Mary D. I'd highly recommend working through your first deal on a multi-family of any size with a mentor who has real experience in the type of property you're contemplating investing in. The safest way particularly if cash is tight, which sounds like might be your situation, is to perform some useful function for an experienced investor, such as being a fund raiser, while following them through all aspects of the deal. You'll learn so much about the mechanics of multi-family, including whether this is really something you want to do, and have made contacts that can help you if you decide to move forward.
You want to be really really prepared before jumping into MF, where the big numbers involved can quickly overwhelm if they turn negative. Otherwise, you risk running out of reserves part way through, as Jeff above alluded to, and more prepared investors will be only too happy to come in and pick up the pieces while you the newbie investor retreat to lick your wounds.
Rental Property Investor · NH · Member since 2015 · 76 posts · 16 votes
10y
Thanks Ken and Jeff! Ive been looking at mostly 2-4 units. One has 2 offices 2 apartments. Most are residential. My goal is to stay under $80-90k per unit. And of course anything lower is a bonus. This way the rents will put me in a cash flow position. Also in my area there's a lot of well/septic systems. Which can kill a deal. With that being said I'm trying to stick to public water and sewer. I will call upon a few friends that currently have multifamily property's and get feed back also. I've done new construction, rehabs, land development and currently have a SF investment. So do have that behind me.
I know how quickly monies can go if there are unforeseen repairs. In your opinion whats a good amount to have in reserve? I have an associate Im going to ask if they want to do something like an equity share to have more money upfront. Any thoughts on that?