Wayne, NJ · Member since 2019 · 31 posts · 11 votes
Hello,
I am a new investor from North Jersey about 30 minutes from NYC so multi family properties are a bit pricey here. I am looking to acquire my first multi family property for renting out next year, 2021. I have a decent down payment i can put in - say, 50k.
Looking toward my future - I am torn between 2 options to start off my RE career:
1) going in on a smaller multi family deal (2 or 3 units) by myself, or...
2) going in on a larger multi family deal (4, 5, 6, etc.) with TWO or THREE other people to help finance the deal
Which option would be more beneficial in terms of cash flow (in general) and scaling for the next property after that?
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
6y
@Adam Bielous As a newer investor with less capital to work with you can't be picky. That's not what you want to hear but it's the truth. I was in a similar situation when I started out. Learn your market, run the numbers, and become an expert on what DEALS look like. When you're ready attack. The number of units don't matter!
If you buy right, add value, and lock in good tenants you're already on the right path. The sky's the limit after that. You could cash-out ReFi, partner up, use private money, and other things to fund deal #2.
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
6y
@Adam Bielous As a newer investor with less capital to work with you can't be picky. That's not what you want to hear but it's the truth. I was in a similar situation when I started out. Learn your market, run the numbers, and become an expert on what DEALS look like. When you're ready attack. The number of units don't matter!
If you buy right, add value, and lock in good tenants you're already on the right path. The sky's the limit after that. You could cash-out ReFi, partner up, use private money, and other things to fund deal #2.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
6y
@Adam Bielous why multi family? Right now multi family is in high demand and prices are correspondingly high. All the advantages of multi family go way if you pay to much. In my market single family properties give a better return. In the longer run that help me scale up faster.
To answer your question more directly, it depends on which deal is better. There is no one answer that will be true in all situations.
Will this be your first rental property or first multi family? Is there a reason for the 2021 timeline if you're purchasing this year? There are a few things to consider: 1. Multi’s with 4 units or less can be funded through a conventional mortgage (if you currently have less than 10 mortgages). 2. Multi’s with 4 units or less fall into a different insurance bracket. 3. Taking on non-spouse partners should require legal agreements outlining business arrangement, financing, and exit which will add nonproductive costs to the purchase. One thought might be to consider other markets. The middle of the country has lower per sq ft pricing, better rent rates as a % to cash invested, and many markets have landlord friendly regulations. Your down payment can go a long way in most states anywhere on the map between Texas and Michigan.
Wayne, NJ · Member since 2019 · 31 posts · 11 votes
6y
@Don O'Grady thank you so much for your input! Great to know that Don! We should connect!
This would be my first real estate deal in general and multi family properties are what I’m leaning towards due to the multiple cash flows from multiple tenants - I like that. I’ve chosen 2021 because that is when I would reach my cash goal to use as a down payment for a property with some money left over in case of a small rehab.
As a new RE investor, I don’t feel comfortable exploring too far outside of where I live just yet. Although I do know that 50k in the mid west would go much further than around here - which is bittersweet.
How have you overcame the pricey properties around here? How did you start?
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
6y
@Adam Bielous I get that. What if you could have more cash flow from 3 single family homes for less than the price of one four unit? That may not be the case in your area but it is in mine.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
6y
Either partnership or on your own would be fine. I would recommend a 2-4 unit vs a 5-8 unit. Financing is much better for the 2-4 unit and a 5-8 unit has no advantages over the 2-4 unit as far as efficiencies. There is also a much bigger resale market for the 2-4 family.
It sounds like you are trying to establish a baseline occupancy to dilute the risks from vacancy / rent delinquency. What you’re trying to do makes sense.
I don't buy invest properties in this area because of the ROI and tenant regulations. I love living in NYC, but it just isn't the right spot for my investment dollars. My long-term goal is to be able to live anywhere I want and still be a good owner that provides quality housing. This goal is at the core of how I've shaped my business, and how I model financials for new investments.
Since you asked how I got started… My first rental property purchase was WAY over thought. I wanted a single family that was lower $/sq ft in a nice B class neighborhood, in the town that I lived in, and that had the opportunity for me to add value. – say that in one breath, haha. That strategy was good. Then… I went in too optimistic for rehab costs and added personal touches (ie. Unnecessary expenses). Everything worked out in the end, but it taught me a few lessons about buying rentals, rehab and property management. My advice is to analyze lots of deals while being realistic. Even though you aren’t looking outside of your market, look anyway because it will give you perspective. Since you’re paying for the Pro version, BP has a deal analyzer you can use. I’m thrifty, so I built my own tool that rolls into a summary that can be sent to lenders as a high-level view before underwriting. The first property is the hardest, getting over the 3 hump is important.
Best of luck! If you have any questions along the way, please feel free to reach out.
Wayne, NJ · Member since 2019 · 31 posts · 11 votes
6y
@Don O'Grady thank you Don! It’s true that you can read all you want and grasp the basic knowledge of RE, but the best education is to just do it. It’s a hump that I need to get over. I really appreciate your feedback!
I am new to investing as well. I am in the Phoenix Arizona area and first wanted to house hack but have been looking for deals for the last 6months to no avail. I am now in a situation where I need to make some moves fast and I was wanting some advice on changing my strategy. Would just switching to trying to house hack single family homes (live in for one year then rent out a turnkey home) be a good strategy or would I be better off just following a BRRR strategy going forward?
Hey @Ned Carey, do you have any suggestions for how to purchase multiple single families? I've been looking for a multi-family for my first buy, and the thought of multiple single families is new to me. The one hang-up I see, is the requirement of living in the residence for 1 year before you can move out
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
6y
I'm a big fan of partnering with others, but only if you can find others who are experienced and you know, like, and trust. Supplementing your knowledge with the knowledge of others can help you avoid mistakes you may have otherwise made. It takes time to build those relationships but it's well worthwhile.
Flipper/Rehabber · Toms River, NJ · Member since 2014 · 378 posts · 154 votes
6y
A lot of people say don’t bother starting small but I recommend it. There’s a good amount of moving parts with multi family so it’s important to understand them. I would read Crushing It by Brian Murray and What Every Real Estate Investor Needs to Know about Cash Flow. Those were instrumental to my development and I recommend them all of the time!
Hey @Ned Carey, do you have any suggestions for how to purchase multiple single families? I've been looking for a multi-family for my first buy, and the thought of multiple single families is new to me. The one hang-up I see, is the requirement of living in the residence for 1 year before you can move out
My comment was assuming we are talking about strictly investment properties not something you are going to live in. House hacking by buying a multi unit, and living in one of the units, is a great strategy. You get the tremendous advantage of owner occupied rates. What I said about one multi-family vs multiple single family properties doesn't really apply to the house hacking
The fact so many people are realizing that house hacking a small multi- family is a great strategy, is what is causing the demand and higher prices.
Real Estate Agent · Tacoma, WA · Member since 2019 · 53 posts · 20 votes
6y
@Adam Bielous
Hey Adam,
I am looking into purchasing my second house. I plan to rent out my first house and owner occupy the second house. One type of property that I am looking for includes houses with unfinished basements that have exterior entry ways. From this I plan on moving into the top half, finishing the bottom half and renting out the bottom half. After a year, I am going to try and repeat this strategy. Multi family is expensive in my area right now so this is a unique way to get 2 incomes with 1 house.
Flipper/Rehabber · Leominster, MA · Member since 2020 · 667 posts · 384 votes
6y
1) going in on a smaller multi family deal (2 or 3 units) by myself, or...
2) going in on a larger multi family deal (4, 5, 6, etc.) with TWO or THREE other people to help finance the deal
Which option would be more beneficial in terms of cash flow (in general) and scaling for the next property after that? Go small for two big reasons: (1) tax liabilities and benefits are a mess to distribute between a group of people, and (2) a 4 - 6 unit building is typically considered commercial, codes are completely different and your learning curve will be significant.
Start small & make things simple; the more people involved, the more complexity.
Wayne, NJ · Member since 2019 · 31 posts · 11 votes
6y
@Richard Miller - thank you for your advice! I have also been considering house hacking my first property and then jumping to the next property to house hack and so on and so forth - Like the snowball effect
Wayne, NJ · Member since 2019 · 31 posts · 11 votes
6y
@Ian Walsh - thanks Ian. Just trying to understand and learn as much as I can now. Always thinking about the next deal (even though I don’t have the first one). Just want to do what is best for the future.
Flipper/Rehabber · Leominster, MA · Member since 2020 · 667 posts · 384 votes
6y
No problem Adam. Last thing to consider... Biggerpockets is an amazing community with lots of great people pulling off lot of different strategies and tactics BUT you should NOT be seduced by complexity or trying to do too much. I am lucky to work with a lot of well to do clients (my practice as an Agent as distressed real estate) one thing they all have in common is patience and focus. I have been through two cycles in RE, I did poorly through 06 - 2010 because I tried to do too much too quickly... This time around I am focused & I am doing really well. Time is on your side... Investing is about leveraging your intelligence and resources so that your money works for you!!! Good luck & I am glad you found my post helpful.