Guidence purchasing first Multi-Family property

[Angello Campbell]

I am a beginning investor that is trying to purchase my first multi-Family property (5-15 units). I keep readIng MultI-famIly Is where the money is. My current situation is outlined below, and I was wondering if it’s possible for any experienced investors to explain to me how to obtain my goal. I own: Property # 1 Purchased for $90k, owe $54k at 4% interest rate. $665 Payment renting out for $925 month. Valued at $112K Property # 2 Purchased for $82K, owe $79K at 4.25% interest rate. $425 Payment renting out for $1200 month. Valued at $133K Property # 3 Purchased for $74K, owe $58K at 5.25% interest rate (condo). $525 Payment renting out for $1025 month. Valued at $85K Property #4 (Primary residence) Purchased for $292k, owe $251K at 4.85% interest rate (condo). Valued at $303K *Values are estimates from Zillow. I know there can be some accuracy issues. Just a ballpark. 10K in savings, 120K in Stocks, 100K in 401k The link below is the property I’m looking at trying to buy. Any thoughts on how to go about buying this property without having to search for investors. Am I out of of my league for looking at this property? Should I look at a cheaper price point? I want to stay in the DC, Maryland, Virginia area so I can be close to my property, to deal with any issues should they arise. Any guidance will be appreciated. Thank you. https://api.crexi.com/assets/145050/offering-memorandum?access_token=HbMd8C9bya8wXqHegBu_zNY7KTYyvEeHkgBAdRlUaYs6KqdqHm3U4Lun-jXPzKAGg9PKNa_scQfYdMSP3BgcJQXXSNsDmUWsgzEtCpEHmqgLYm639UuhdIb92UEyuFwUDsCvtafnP_lUMVo1rx6pCm82v32tRdYlTOEN7N_QKQV3EQUj6WdwNQYDSDNt6gdALCK3hcLYuRbW-XeYAhxr99n3yPpDecc6pifv98fmgx4kxBT4tP63xKQVuavjuDwb45176whaIBmEaphDxeQjIfGTVK0

[Dan H.]

Properties #1 and #3 are cash flow negative if I use the 50% rule. Property #3 may be bleeding cash if HOA is not included in the payment. Property #2 has cash flow of $175/month if using the 50% rule.

Is the investment play on your existing units both property and rent appreciation? It cannot be current cash flow. The reason I ask is that if you sold the units you could potential afford the initial costs if you can obtain 80% LTV (but it would be tight).

Sell units: $330K value - $30K (cost to sell including agent and prep) = $300K.  $300K - $191k (owed)= $109K. 

 $109K + $10K + $120K + $100K = $339K.

At 80% LTV you need $300K + closing costs but the lender likely will want reserves.

You definitely would be all in on this RE.  If you could address the vacancies (5 of 12 vacant is a lot of vacancy but it provides potential for significant improvement) this would provide better cash flow than your current units.  If fully rented this may be a 1% property (monthly rents are 1% of the purchase amount).  Why are there so many vacancies?  Addressing high vacancies provide good value add potential, but sometimes it is not easy.

Do you expect the appreciation on the potential new property to match your current properties? 

Thoughts:

• Do you have an established mortgage broker relationship?  Leverage their knowledge to determine if you could afford this property if you sold your existing rentals (that likely are cash flow negative as a set). 
• How much are you willing to risk on this property?  Are you willing to invest all of your accumulated wealth?
• How confident are you of being able to address the vacancy issue?
• How confident are you of appreciation on your existing assets?  How confident are you that you can increase the operating income on the potential new asset?  How confident are you of market appreciation on the potential new asset?

I believe in leverage but I would not choose to leverage everything on a single asset. 

Good luck