Paying on a muti-family

11 Replies

So I’m a new investor looking to buy a multi family. Now when I use the calculator since I’m going to have to put 3.5% down I run into a high mortgage. In short that high mortgage is causing me to be negative in cash flow. Now if I have to come out of pocket on a mult family property a couple hundred bucks, is that better then not having a property at all and saying forget it? Kind of need some advice on that!

@Taylor Smith some people are fine with negative; it is not for me. How can you pay all the bills and build up reserves (to redo that roof etc)if it is coming out of your pockets which may be pretty empty to begin with. That is how investors wind up being forced to sell and devastated. That is an ugly business you do not want any part of. Build up some cash and don't bite off more than you can chew. To answer your question directly my advice is don't jump into deep water without adequate life preservers. All the best.

Thank you I appreciate that. So your pretty much saying unless it has some cash flow coming in don't mess with it. Unless you have the capital to make up for it. 

My preference is positive cash flow from day one with future upside. Or present a purchase price that works for your preference in CoC returns and financing option.

well. That’s means you don’t have a good enough deals. Don’t buy it.  You make your money when u purchase especially in this hot market 

there's a strategy for everything.  Typically a negative cash flow strategy is for someone that is trying to make their money by adding value or increasingly the monthly rents very quickly.  The strategy takes money to be able to do those things.  I have no desire to lose money monthly to gamble on appreciation, if I want to gamble I'll buy a lottery ticket.  Is it negative cash flow with all the units occupied or just when you are house hacking in it?  Because that makes a difference. 

Originally posted by @Taylor Smith :
So I’m a new investor looking to buy a multi family. Now when I use the calculator since I’m going to have to put 3.5% down I run into a high mortgage. In short that high mortgage is causing me to be negative in cash flow. Now if I have to come out of pocket on a mult family property a couple hundred bucks, is that better then not having a property at all and saying forget it? Kind of need some advice on that!

 It depends if the house price will appreciate in the near future. For instance, NYC multi family will definitely not cash flow positive with 10% down unless you bought it dirt cheap which rarely happens. But the house price can appreciate a lot more than the cash flow. A flipper friend of mine bought a 3 family near long island city for 800k in 2015, it is now worth 2 million. Thats 1.2 million equity appreciated in 4 years, and most likely will increase further due to Amazon HQ2. So unless your into similar situation, it is better to cash flow positive on day 1 if house price has little appreciation in the future.

Find a deal with fatter margins. ESPECIALLY on your first deal, where you will in all likelihood make some mistakes which'll cost you a bit of money.

@Taylor Smith , there is a lot we don't know about your potential deal.  Is the negative cash flow figured with you living there free?  Is there a potential to increase rents and become positive cash flow?  How fast are properties appreciating there?  What is the area?  What are the specifics on the deal, how much is asking price, how much is rent for each unit, are utilities included, how much work does it need, what is the local rental demand, ?  Where are you financially?

I am assuming that you are house-hacking since you are pursuing a 3.5% down loan. Negative returns while you are living there is okay, which is why you want to underwrite the deal as if you are not living there because you will eventually move out and rent your unit. 

Underfunded & bleeding cash !!!

That's exactly how we got a 3-plex for an $80k discount on the price the previous buyer had paid. He had a lousy PM, longterm vacancies on the largest apartment & the tenants he had were intermittent paying lowlifes & he was bleeding a lot of cash. The buyer had gone through an expensive divorce, got transferred out of state & his live-in maintenance guy was a free loading nightmare. But he did end up with a significant carry fwd loss.

We got it cash, no conditions, close in 30. We cleaned out the tenants, evicted the maintenance guy & $25k later in rehab it's now a legal 6-plex that's rarely vacant except for the usual tenant transition.

Good luck but think it through!!!

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