Rental Property Investor · Hallandale Beach, FL · Member since 2019 · 33 posts · 24 votes
I'm getting ready to buy my first rental property within the next 2-3 months . I have 13k saved up and I intend to use an FHA loan.
The multi family properties in my area are about 300,000+ for a 2/1 duplex . I found a realtor and he advised that it would not be safe to get a multi family just yet . He said having only 13k would be spreading myself too thin because things could break right after I buy and it could be difficult if both stoves broke for example .
He advised that I should start off with a condo that was 115,000 in a 55+ community , which I could rent for 1600 and get a feel of land -lording . If something broke , it would not be as expensive versus if something broke in both units of a duplex . He thinks I should get a few properties under my built before I buy a multi family .
My original dream and strategy was to get a multi family as my first investment . But I also am aware that if a strategy can’t work for the moment , another strategy can . I feel a little unsure on what step to take . What do you guys think ?
@Stephanie Sicard I cannot disagree more. If you buy a condo in a 55+ community, you have your mortgage, HOAs, and limited renter pool. On top of what happens when condo association decides no more renters, or limits the number of units that can be rented. Finally, with one condo, you only have one source of income. If tenant moves out, your mortgage, insurance, taxes and HOA are still due.
Yes, a duplex means you have 2 stoves, 2 fridges, etc to repair, but that will be part of your inspection period. The key is understanding those risks and budgeting for it. This is like any other business. But with a 2 family, you have one mortgage and two people paying into it. When someone moves out, you still have at least a little bit, if not all, of your mortgage covered. You also have only 1 roof, one set of gutters, etc.
I will say, having only $13k saved is a little thin, depending on how much you need to use for down payment. I try to keep about $5k in reserves for my 2 family at any time, but a lot of the mechanicals are less than 10 years old, as are appliances, etc. My roof is the next project.
@Stephanie Sicard There's nothing wrong with buying a multifamily property as your first investment property. But your Realtor is absolutely right about making sure that you have an adequate cash reserve. This applies whether you're buying a condo, a single-family home, or an apartment building. If buying the property will eat up all of your cash reserve, then you're better off saving more money first or finding a partner so that you can increase the amount of available cash that you have at your disposal.
I think the first step is to talk to your lender to see what the qualifying standards are for an FHA loan for a non primary property purchase. Once you know the down payment and expected closing costs you can work backwards to see the amount of property you can afford.
Condos are a nice place to get your feet wet in REI since a lot of the big expenses that you may incur are wrapped up in the HOA fee you pay every month vs Multifamily were you need real reserves and you are liable for all repairs.
Also, you need to address possible restrictions in these 55+ communities in regards to purchasing and renting. We purchased an asset in one of those communities and it is strictly a cashflow play, don’t expect appreciation in these communities.
Some questions to consider:
Have you thought about house hacking a condo? You can purchase it as a primary Residence with as low as 3.5%(FHA) down and then rent it after the first year.
Another thing to note is the Private mortgage insurance or Mortgage insurance premium the bank will charge you with any purchase with any purchase above 80% LTV. Sometimes these premiums can stay on for 10 years affecting your cash flow and wishing you put the 20% down to begin with.
Keep saving, prepare and you will do well in REI :)
@Stephanie Sicard I cannot disagree more. If you buy a condo in a 55+ community, you have your mortgage, HOAs, and limited renter pool. On top of what happens when condo association decides no more renters, or limits the number of units that can be rented. Finally, with one condo, you only have one source of income. If tenant moves out, your mortgage, insurance, taxes and HOA are still due.
Yes, a duplex means you have 2 stoves, 2 fridges, etc to repair, but that will be part of your inspection period. The key is understanding those risks and budgeting for it. This is like any other business. But with a 2 family, you have one mortgage and two people paying into it. When someone moves out, you still have at least a little bit, if not all, of your mortgage covered. You also have only 1 roof, one set of gutters, etc.
I will say, having only $13k saved is a little thin, depending on how much you need to use for down payment. I try to keep about $5k in reserves for my 2 family at any time, but a lot of the mechanicals are less than 10 years old, as are appliances, etc. My roof is the next project.
If you own your residence thru FHA, then the probabilities of qualifying for a rental property thru FHA are slim to none.
If you don't own a residence yet, then you can buy the duplex with FHA loan 3.5% down which is close to what you have now, live one half and rent the other half and have a cash flow of $200-$300.
A duplex is a better investment and is easier to sell than a condo at least here in Fort Worth. That’s just my two cents on the matter.
I think your agent makes some good points. I would get a residence with 3 plus bedrooms and house hack it. If you cant afford it yet wait until you can as you want around 10k in reserves for capex. Multi families are harder to exit as more people are looking for single family than they are duplexes. You might windup hating being a landlord in which case exiting will be easier. Don't settle on a cheap house in a bad neighborhood because that's what you can afford. The tenant base will be hard to handle. After house hacking for a while then decide if you want to go to a small multi family. Even then I would go single family first since it will be your first time as an absentee landlord.
I agree with @Evan Polaski you can buy whatever number of units providing you have enough downpayment, some reserves and that the rental income can cover the expenses on a regular monthly basis.
Low downpayment could mean higher mortgage payment, which could easily put you in the negative monthly income. So be careful with lower downpayments.
Knowing the property can reassure you of too many things breaking at once, like both stoves etc. It is unlikely that something like this will ever happen but even so, it could happen and you should have reserves or the ability to cover such unforseen expenses.
I'd be happy to discuss any specifics if you'd like.
Your Realtor is clearly not investor friendly. He is demonstrating that he is afraid of what he does not understand. There is nothing wrong with house hacking and starting off with a duplex/triplex as a first purchase. There are many more pros to buying a duplex over a condo. A stove would be the least of your worries.
Also when you buy multifamily you are able to claim 75% of the cash flow as income to help you qualify for more expensive properties. And when you buy multifamily the rent and taxes will be prorated which will give you a decent credit at closing so you will come up with less out of pocket. A good experienced agent can help you buy right. Negotiation is everything.
Hi @Stephanie Sicard, If you want to start with multifamily, which you certainly can, don’t let the opinion of one self interested person get you off track. Better to find a broker who can actually help you achieve your goals, rather than one who asks your to confirm to what they can offer.
As others have posted, you can manage your risks by doing inspections etc. Multifamily will help you to scale more quickly than other strategies and demographics are in your favor with increasing numbers choosing to rent rather than buy. Good luck!
@Manny Cirino Thank you Manny . That’s actually why I wrote the post . I felt like instead of telling me I shouldn’t buy a multi family as a first investment , he could’ve discussed other options or found a way to make it work as I have seen many realtors do for their clients .
Don't let someone else crap on your dreams. There will be a lot of people that will give you "advice" on why you cannot do something. Look at the opportunities in the market and develop your own understanding of what the right option for you is.
In general, I would say that a duplex would be a better investment than the condo, but we are missing some important details to offer advice in this particular situation.
First, how much are the monthly association dues for the $115,000 condo you referred to? $1,600/mo rent for a $115,000 condo sounds pretty good at first blush (but I come from an area where even the 1% rule is tough to find), but after you factor in dues it might be closer to the norm for your area.
Second, how much rent do you think you could get total for the typical $300,000 duplex?
I would let the numbers for your area dictate the decision. The agent you spoke with had a good point about reserves, but if you have other means of covering a short term expense (like a credit card), then go for the best overall investment. Be sure to look at the big picture though - if the typical $300,000 duplex has an older roof and older mechanicals then you will be looking at much larger expenses than a couple oven/range replacements.
If you're ready to buy I say go ahead and get your feet wet and learn the business and buy the multifamily. Don't let, "analysis paralysis", get the best of you. Do your due diligence as much as you can and go ahead and try it out. As long as the roof looks good and the heating and air is working well, you should be ok. Those will be the big ones that can bite hard. Get a credit card that you would only use for repairs on the property.
Get a new agent. I wouldn’t be surprised if that condo he told you to buy instead is his or her own stale listing.
Give me a break!
As others mentioned, if you want the multi-unit, go for the multiunit. Part of the cash flow will be counted as income for your qualification, you can also save the cash flow once you close to build up your reserves if you don’t have any at the moment. In my opinion, the pros outweighs the cons as long as you weigh the risks appropriately.
If you want the multiunit, go for it! Get a good inspection done to determine the life expectancy of the mechanical systems and the appliances and proceed accordingly. Even if you have to back out of a deal because it needs work you don’t have the funds for, you will learn a lot.
@Stephanie Sicard yeah, @Enrique Huerta nailed it. Ask him if he happens to know of a condo like that!
Look, you are “skinny in the deal” and things cost more than you expect. You may find yourself scrambling and using a credit card in an emergency etc for a few years.
But as risks and big leaps go, living in a duplex you rent out is a pretty solid plan if the numbers work.
I'm getting ready to buy my first rental property within the next 2-3 months . I have 13k saved up and I intend to use an FHA loan.
The multi family properties in my area are about 300,000+ for a 2/1 duplex . I found a realtor and he advised that it would not be safe to get a multi family just yet . He said having only 13k would be spreading myself too thin because things could break right after I buy and it could be difficult if both stoves broke for example .
He advised that I should start off with a condo that was 115,000 in a 55+ community , which I could rent for 1600 and get a feel of land -lording . If something broke , it would not be as expensive versus if something broke in both units of a duplex . He thinks I should get a few properties under my built before I buy a multi family .
My original dream and strategy was to get a multi family as my first investment . But I also am aware that if a strategy can’t work for the moment , another strategy can . I feel a little unsure on what step to take . What do you guys think ?
Thanks for all the advice in advance .
Whatever you set your mind to you can achieve!!
I would be careful with condo as you have HOA dues that can hurt your overall NOI.
I would go to your local multi-family meet up or investor meets up and start to network with like-minded people. You never know. You may find a local partner to partner on deals.
@Stephanie Sicard I would vote strongly against what your agent recommended. Have you interviewed other real estate agents? Look for some who specialize in working with first time investors. I'd invite a few to get coffee and get their advice on your specific market. My guess is that they will be all on board with the multi-family property.
The only part they got right is that you must facto in repair and maintenance costs. You can set yourself up to cover these as long as you find a property with sufficient cash flow. I set my expected operating costs at 30% in Eugene, OR and 25-28% in Portland, OR and then count THAT number against my mortgage payment. If the deal still cash flows, it's worth delving deeper.
Congrats on getting started. I agree with a lot of what the others have commented but maybe my story can help you.
The first rental I purchased was a duplex. Reason being, in my area there are still some multi family properties that arent anymore expensive than buying sfrs. For example I can buy a single family for 30k-50k and duplexes for 50k-100k. So unit for unit cost is similar. The reason I bought the duplex is pretty much a direct contradiction to what you realtor is trying to sell you.
I like the fact that it has 2 stoves, 2 refrigerators, 2 hot water tank etc. The reason I decided to purchase is because it also has 2 very important things.... RENT CHECKS!! What's better than getting 1 check? 2 Checks!
It also only has 1 of a few things that are beneficial as well. Roofs, siding, driveways and yards.
Buying a duplex vs 2 sfrs will save me on a few of the major capex costs down the line also because it's one roof and not 2. It also saves me monthly maintenance because it is only one yard to mow.
So for me the duplex made way more financial sense in my area. There are pluses and minuses for each property type, but for me multi-family was the way to go. Dont let someone else's agenda get in the way of your future.
@Evan Polaski I agree fully, one door is never a good option. And I would take it a step furthermore and say never buy anything less then 16 doors. Buying one door leaves you too vulnerable to your investment becoming a liability instead of an asset.