First Fourplex advice

12 Replies

Hello! I am new to this forum and fairly new to the business of real estate investing. The knowledge I have has come from helping my wife obtain her real estate agent licensing, as well as helping her sell her first few homes. Not much experience at all but it allowed me to see the potential of growth from real estate investing. I'm looking for advice on where to begin in this process. 

As of right now I have about 70k equity in my single family home. I'm considering selling and using the equity as down payment for a fourplex so I can begin "house hacking".  On a recent BP podcast. They spoke of being able to purchase land and build for $100/sq ft in my area. Is building to rent actually feasible? If so where is a good place for me to begin? I've started pricing fourplexes in my area so i have an idea of what is in my price range. As long as I can make the numbers work and come ahead with a positive cash flow after all expenses what else do I need to worry about? What should i be reading on? I was also interested in using 1031 on my house. Am i able to use the 1031 and still obtain an fha loan if I plan on living in the fourplex?

Congrats and getting ready to dive in. A couple of thoughts, but these are all opinions as will be every other response on this topic, so mash them all together and do what's best for you.

In most good rental markets around the country buying existing properties can be done for less than building new, so there's not much motivation to build. Compare the pricing on both sides, check what the available inventory is, and go from there. Also, it can be easier to get a loan for an existing building as opposed to a construction loan if this is your first real estate endeavor.

Last, would your primary residence make a good rental? If so, hold onto it, and do a HELOC to access the equity to use for your next project.

And no, you can't do a 1031 on your primary residence, but you don't need to. If you've lived in it for at least 2 of the last 5 years, you can sell it and exclude the proceeds from your income calculation, up to $250k of gain, or $500k if married and filing jointly.

I've been in the property for 5 years so that will work perfectly for me! My primary residence would be a great rental. However I don't believe I have enough income to obtain a HELOC and a loan for the Fourplex. From what I've read they won't allow loans past 35% of your total income. Not sure how true that is, if so, then both loans would surpass that barrier. I would financially be capable of paying both loans but if I can't attain the loan then that is of no relevance.

@Brad Shepherd is referring to doing a Section 121 I believe in his last paragraph. I agree with everything he sasid as far as I've learned. I'm planning to follow your footsteps eventually.

I agree with @Brad Shepherd - Does it make sense for you to build a fourplex instead of buying an existing one? What is your timeline? It will be a while before you are able to move if you are planning to build from the ground up. Not a bad idea, just wondering if there is financial pros behind building your own.

My husband I are planning to do the same thing (not build though). We currently live in a single family home and are going to take out the equity for a down payment on a multifamily and rent out our current single family.

I have been focused on financing, but have recently switched over to property management and deal analysis.

Good luck to you!!

Interestesting thread as I am doing my due dilligence on a fourplex in corpus Christi as we speak. If was bought as a foreclosure by another investor and he never really got it going. He didn't do good tenant checks had to evict two, got behind to the bank and I got a call from a banker contact that tipped me to the property. My biggest issue is that I was really looking at BRRR foreclosures of small houses, and this sort of fell in my lap.

My problem is that while I can see the math working I worry about the distance and collecting rents long distance.  I think that ultimately I might consider going section 8 just to lock in the cash flow, but I could get higher rents if I did not... but that's what the guy that bought and renovated thought, and he's screwed now.  The property was build turn of the century and they guys remodel looks pretty good.  He did NOT replace the sewer line and when I first walked the property there was a nice pile of poop and toilet paper from the overflow.  I would spend the $5500 to replace the sewer line hoping that eliminates the problem (after scoping/ hydrostatic testing) but it's in by budget.

Am I nuts?  I know the bank wants to just move the property, without going through foreclosure. So there is an opportunity, but I worry about the issues of managing 4 units from long distance?  

Thanks in advance!

we just increased our heloc to 87k and the interest rate is 6.5

Originally posted by @Tommy Sessions :

we just increased our heloc to 87k and the interest rate is 6.5

Is that HELOC on primary or rental?

Originally posted by @Lana Lee :
Originally posted by @Tommy Sessions:

we just increased our heloc to 87k and the interest rate is 6.5

Is that HELOC on primary or rental?

Yes. I could be wrong, but bank would not give us heloc on our triplex. 

Originally posted by @Tommy Sessions :
Originally posted by @Lana Lee:
Originally posted by @Tommy Sessions:

we just increased our heloc to 87k and the interest rate is 6.5

Is that HELOC on primary or rental?

Yes. I could be wrong, but bank would not give us heloc on our triplex. 

We are looking at pulling a HELOC out on our rental duplex in the future. I have heard investors do that all the time . But for now we recently opened a HELOC on our primary residence at 3.99 % fixed rate, 3 years draw period , 10 years amortization. Hoping to find another duplex and use that money for down payment.

I really like the idea of moving out of my primary residence, renting it out, then using the equity loan on my primary and the income from the primary to obtain the loan for my fourplex. After all is said and done, as long as I'm not forgetting anything, I should be making about 400 positive cash flow from the property a month. That is including the costs of 10% of rent for maintenance, 10% for property management, mortgage, taxes, rental policy, HOA dues, irrigation dues. Is there anything else I need to be looking at?

Originally posted by @Justin Rice :

I really like the idea of moving out of my primary residence, renting it out, then using the equity loan on my primary and the income from the primary to obtain the loan for my fourplex. After all is said and done, as long as I'm not forgetting anything, I should be making about 400 positive cash flow from the property a month. That is including the costs of 10% of rent for maintenance, 10% for property management, mortgage, taxes, rental policy, HOA dues, irrigation dues. Is there anything else I need to be looking at?

I think it's a good idea to take a HELOC out on your primary residence before converting it to rental. That way you can use the lower owner ocupid rates. And you don't have to pay anything for HELOC if you haven't taken out money yet. While if you take an equity loan instead you will have to start paying right away .

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