Is it bad to focus on only getting a 3-4 unit for your first?

Multi-Family and Apartment Investing
6yFollow

Is it bad to focus on only getting a 3-4 unit for your first?

Bradley Lemen
Realtor · VA · Member since 2019 · 10 posts · 2 votes

I have been pre-approved to get a home and I have seen a few places and also put an offer on 1 but it didn't go as planned. I have mainly been focusing on duplexs but my area doesn't have them on the market as often. So I have branched out into the bigger cities near me and found some triplexs and quadplexs! "Personally I don't want to invest in another state yet mainly because I'm learning and also have a life long goal on rebuilding my small town". After running the numbers and seeing the amount of cash flow I would make from a tri or quad it has made me not even want to look at duplexs anymore... Is it bad to only focus on a 4 unit or maybe a 3? I want to house hack for my first ever property and SFH doesn't even seem like a good idea for me and duplexs are covering my mortgage and maybe a small profit but triplexs and quads are seriously almost bringing close to what I make at my W2 job. I'm afraid I'm going to be waiting too long until I get myself a property to make some money from but I also want to have a good cash flow from my first property as well. This has kinda been stressing me out and I just feel asking here would help me figure out what would be best!

Do you guys think it's okay to wait for a tri or quadplex in my area? Or would it be smarter to try and get into something sooner rather than later? 

0Reply
59 views

Most Popular Reply

Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
6y
Originally posted by @Bradley Lemen:

I have been pre-approved to get a home and I have seen a few places and also put an offer on 1 but it didn't go as planned. I have mainly been focusing on duplexs but my area doesn't have them on the market as often. So I have branched out into the bigger cities near me and found some triplexs and quadplexs! "Personally I don't want to invest in another state yet mainly because I'm learning and also have a life long goal on rebuilding my small town". After running the numbers and seeing the amount of cash flow I would make from a tri or quad it has made me not even want to look at duplexs anymore... Is it bad to only focus on a 4 unit or maybe a 3? I want to house hack for my first ever property and SFH doesn't even seem like a good idea for me and duplexs are covering my mortgage and maybe a small profit but triplexs and quads are seriously almost bringing close to what I make at my W2 job. I'm afraid I'm going to be waiting too long until I get myself a property to make some money from but I also want to have a good cash flow from my first property as well. This has kinda been stressing me out and I just feel asking here would help me figure out what would be best!

Do you guys think it's okay to wait for a tri or quadplex in my area? Or would it be smarter to try and get into something sooner rather than later? 

 Bradley,

I doubt it if 3-4 units will pay you close to what you make on your job. You probably have not calculated the cashflow correctly.

Cashflow is not equal to Rent minus the mortgage payment.

Most newbies make that mistake.

You can also rent by the room or do AirBnb so houses or duplexes might still work.

Duplexes is where I started - I rent out one unit and I even have a roommate on the other.

Twenty years later and I now own 1,000 apartment units.

14Reply
See this reply in the discussion

27 Replies

Jump to latestLatest
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Bradley Lemen:

    I have been pre-approved to get a home and I have seen a few places and also put an offer on 1 but it didn't go as planned. I have mainly been focusing on duplexs but my area doesn't have them on the market as often. So I have branched out into the bigger cities near me and found some triplexs and quadplexs! "Personally I don't want to invest in another state yet mainly because I'm learning and also have a life long goal on rebuilding my small town". After running the numbers and seeing the amount of cash flow I would make from a tri or quad it has made me not even want to look at duplexs anymore... Is it bad to only focus on a 4 unit or maybe a 3? I want to house hack for my first ever property and SFH doesn't even seem like a good idea for me and duplexs are covering my mortgage and maybe a small profit but triplexs and quads are seriously almost bringing close to what I make at my W2 job. I'm afraid I'm going to be waiting too long until I get myself a property to make some money from but I also want to have a good cash flow from my first property as well. This has kinda been stressing me out and I just feel asking here would help me figure out what would be best!

    Do you guys think it's okay to wait for a tri or quadplex in my area? Or would it be smarter to try and get into something sooner rather than later? 

     Bradley,

    I doubt it if 3-4 units will pay you close to what you make on your job. You probably have not calculated the cashflow correctly.

    Cashflow is not equal to Rent minus the mortgage payment.

    Most newbies make that mistake.

    You can also rent by the room or do AirBnb so houses or duplexes might still work.

    Duplexes is where I started - I rent out one unit and I even have a roommate on the other.

    Twenty years later and I now own 1,000 apartment units.

    14Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    6y

    Hey Bradley, I agree with @Michael Ealy. You need to have an underwriting model that factors in CapEx, Vacancy, maintenance, property management (even if you are self managing the deal should STILL work), and debt service.

    In the words of Chris Voss, no deal is better than a bad deal or a time consuming situation where you rushed into something.

    3Reply
  • Bradley Lemen
    OP
    Realtor · VA · Member since 2019 · 10 posts · 2 votes
    6y

    @Michael Ealy for my cash flow I did what most post say on here is what you profit so I will give an example of the place I was looking at and you let me know if I am doing it wrong because I thought I was doing it close enough.

    Triplex
    Unit 1 - $650
    Unit 2 - $650
    Unit 3 "My unit" - $800 2 roommates "plus I plan to put away into my personal savings account the mortgage payment"
    Garages - $110

    Total - $2210 and if you count my mortgage savings then the $929 would make it $3139

    Mortgage with Taxes and PMI - $929
    Water, Gas, Electric, Trash, etc - $195-200 monthly "The previous landlord has expenses from 2017-2018"
    Insurance - $55-60
    Estimated Repairs - $100-600+ monthly depending on what issues go wrong and what doesn't 

    Cash flow $420-$1030 depending on monthly repairs and also not counting my savings for repairs as well? But also saving everything I profit until I have 10k put away for a security blanket on repairs.

    Is that the right way to do it? Or missing more than I have listed? 

    1Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    6y

    What about Vacancy factor and Capex? It is usually 5% for each.

    @Bradley Lemen

    0Reply
  • Bradley Lemen
    OP
    Realtor · VA · Member since 2019 · 10 posts · 2 votes
    6y

    @Eric Johnson 5% of the full income or what's left after mortgage and utilities being paid? 

    0Reply
  • Bradley Lemen
    OP
    Realtor · VA · Member since 2019 · 10 posts · 2 votes
    6y

    @Eric Johnson I think another issue I probably have is I'm always wanting to combine my personal savings from my job into the property as well because I know I can use that to cover things like repairs, vacancies, etc and also adding my girlfriends expenses to because she's in on the idea of rentals as well 

    0Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    6y

    @Bradley Lemen nothing bad about it. More doors will bring you economies of scale on both money and effort. Just make sure you have enough reserves so you are never forced to sell-that applies to any size property. All the best!

    1Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    6y

    @Bradley Lemen 5% of gross income. Each investment should be held in an LLC and you should have bank accounts for that LLC. Co mingling pierces the corporate veil and allows you no actual liability protection. This is not legal advice, I would ask an attorney for further clarification.. thanks

    2Reply
  • Bradley Lemen
    OP
    Realtor · VA · Member since 2019 · 10 posts · 2 votes
    6y

    @Eric Johnson I was planning to do the LLC stuff when I plan to purchase a 2nd property just to be sure that this will be something I fully want to do as well or would that probably be a bad idea? And the bank accounts etc I have all planned up for once I get someone to accept my offer for a place

    0Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    6y

    @Bradley Lemen I think bad idea. LLC are very cheap to set up and I would rather start right than backtrack. If you don't close in your LLC you will then have to go back and deed the property into your LLC later, which is just more work and confusion. Just make the LLC, create an LLC bank account (NOT personal), get an EIN letter from the IRS and start off on the right foot.

    3Reply
  • Account Closed
    Member since 2020 · 122 posts · 11 votes
    6y

    @Bradley Lemen what’s the steps for getting approved for a commercial property etc such as an apartment building for investment purposes?

    0Reply
  • Account Closed
    Member since 2020 · 122 posts · 11 votes
    6y

    @Bradley Lemen what’s the steps for getting approved for a commercial property etc such as an apartment building for investment purposes?

    0Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    6y

    @Account Closed Shoot me another email and we can discuss this topic, no problem.

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y

    Setup an llc right off the bat then setup a business account using that llc then take title of your property using llc ( I would actually use a land trust but that’s for another day ) there’s nothing wrong with buying a duplex as your first deal . Yes a tri or quad make more money and superior in many ways but there’s typically fewer options for them in a given area too so sometimes it makes more sense to buy 2 duplexes instead of a quad if you catch my drift . I wouldn’t buy a single family home to rent out as your first deal . I’d go directly to multi family for rentals . Please know that You can do well buying singles I just wouldn’t start out that way .

    1Reply
  • Thomas Loggins
    Member since 2018 · 21 posts · 8 votes
    6y

    @Bradley Lemen, my plan is to start out with multifamily as well. This strategy gas changed over the last year as I have educated myself and become more comfortable with the idea of starting out bigger. 

    I think start out bigger makes sense if you have your ducks in a row, so to speak.

    0Reply
  • Thomas Loggins
    Member since 2018 · 21 posts · 8 votes
    6y
    Originally posted by @Bradley Lemen:

    @Eric Johnson I was planning to do the LLC stuff when I plan to purchase a 2nd property just to be sure that this will be something I fully want to do as well or would that probably be a bad idea? And the bank accounts etc I have all planned up for once I get someone to accept my offer for a place

    Are you planning on financing this first property? If so, you might want to determine what the lender requires in the loan structure. If you borrow under your personal name and then deed the property into LLC ownership, it might violate your loan covenants. I have heard / read that investors do it all the time with no consequences, but it could create a covenant violation that will allow the lender to call the loan. Some loan docs clearly define what are "Permitted Transfers", and anything other that those could be an event of default.

    I'll let someone with more experience on the matter correct me if I am mistaken. 

    0Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    6y

    @Thomas Loggins not unless he puts the property into a land trust first. The land trust can then deed the property into the LLC. You can not trigger not acceleration when a property goes into a trust, the trust is also a private unrecorded document.

    He would have to do that, or else, yes, he will be subject to acceleration. (:

    0Reply
  • Account Closed
    Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    IMO, a deal is a deal is a deal is a deal. Something that does not work does not work. If it works for you as a deal, it's a deal, and there is nothing wrong with investing in it, period.

    After that, it comes down to personal preference/personal situation. Maybe you can't afford that good deal you found. Maybe you don't want to buy the particular property. Maybe you have higher expectations. These are decisions only you can make for yourself.

    I think your numbers/calculations are fine. Not everyone calculates their investments the same way, though there are plenty of people who will tell you your way is wrong if it is different than theirs, a member of an online forum or, a bank for instance. Obviously each of those opinions has different significance, if any, to you personally.

    IMO, as far as repairs, cap-ex and vacancy, these are the sorts of things that are both set and variable at the same time. I know that's a contradiction, but IMO it's true, with a high chance of being variable in the short-term, and a low chance of being variable in the long-term. The constants are that repairs, long-term major repairs (capital expense or cap ex) and vacancies will happen. The variable is what you do about them during your time of ownership. That's what throws the traditional calculations off and why those calculations are tools for projections, not rules of the universe set in stone. Things can be better and worse than the calculations, depending on you, depending on chance, and depending on timing.

    My advice is to start small and conservative. A single building with 4-units is still small. Set up your financing and cash reserves so that you can survive through any storm - vacancy, repairs, cap ex, market turn, loss of job, etc. That establishes a great foundation to move forward from, IMO (In My Opinion).

    Welcome and good luck! 

    0Reply
  • Account Closed
    Rental Property Investor · Glens Falls, NY · Member since 2016 · 176 posts · 169 votes
    6y
    Originally posted by @Eric Johnson:

    @Bradley Lemen I think bad idea. LLC are very cheap to set up and I would rather start right than backtrack. If you don't close in your LLC you will then have to go back and deed the property into your LLC later, which is just more work and confusion. Just make the LLC, create an LLC bank account (NOT personal), get an EIN letter from the IRS and start off on the right foot.

    You don't need an LLC for an owner occupied property, why would you do such a thing? Adequate insurance and an umbrella is more than enough for someone just starting out.

    Skip the duplexes, find a 3 or 4 unit. You'll thank yourself later.  

    0Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    6y

    @Account Closed still exposed to investment type risks, it is also probably a better practice for accounting reasons anyway. Just an option. And I agree, skip duplexes go to a 3 or 4 unit.

    0Reply
  • Aaron Smith
    Durham, NC · Member since 2014 · 104 posts · 68 votes
    6y

    I don't agree with what was posted in this thread about needing an LLC for each property. I have 32 properties, all owned in my personal name.

    I have examined this issue to no end over the past 3-4 years and honestly having an LLC does nothing to keep you from getting named personally in a lawsuit, so why do through all the effort and hassle for what essentially is futile?

    1Reply
  • Aaron Smith
    Durham, NC · Member since 2014 · 104 posts · 68 votes
    6y

    Just get an umbrella policy over top of the initial liability you have and just leave the LLC out of the equation.

    0Reply
  • Account Closed
    Naperville, IL · Member since 2016 · 49 posts · 11 votes
    6y

    @Michael Ealy. Dude. How can you own 1000?

    0Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Account Closed:

    @Michael Ealy. Dude. How can you own 1000?

     It's no big deal Jeff.

    I've been doing this since 1999. Other apartment syndicators here on BP own more than 1,000 units.

    I've actually acquired more than 1,000 apartment units but I've sold a lot of apartment units that I used to own. I continually buy every year and I continually improve my portfolio by selling some of my buildings.

    But to answer your question "How", the answer is a combination of three things:

    1. Being great at finding good apartment deals

    2. Focusing on "value-add" deals so I can create significant value for me and my investors. Deals like these:

    41 Units : $627K profit after 15 months

    https://www.biggerpockets.com/forums/52/topics/802703-41-units-no-money-down-deal-627k-profit-in-15-months-how


    30 Unit Townhomes: $2M Profit or $15,000/month Cashflow     (this project is still on-going)

    https://www.biggerpockets.com/forums/432/topics/753858-brrr-actual-deal-2m-profit-or-15k-mo-cashflow-with-pictures

    48 Units, $1 MILLION Profit After 6 Years     

    https://www.biggerpockets.com/forums/311/topics/644570-how-i-made-over-1-million-on-1-deal-after-6-years-of-headaches

    96 Units, $1.5 MILLION Profit After 2.5 Years 

    https://www.biggerpockets.com/forums/432/topics/765918-whats-your-most-successful-apartment-deal-ever

    3. Due to a track record of successes like above, I was able to attract private investors (OPM). When you have OPM and good management system, you can scale and buy tens of thousands of units if you want to.

    Hope this answers your question.

    0Reply
  • Account Closed
    Naperville, IL · Member since 2016 · 49 posts · 11 votes
    6y

    Wow @Michael Ealy.  Very nice 

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free