First multi family investment

20 Replies

I am new to Bigger Pockets, and this is my first forum post.

My fiance and I are looking into buying our first home. I have decided that instead of purchasing a single family home for ourselves, we have begun looking into the purchase of a multi family investment property in South Jersey (ie. Camden/Burlington Counties).

I've looked on the market and determined that it is mostly duplexes, and a few more expensive 3 and 4 units. The most likely scenario is for us is the purchase of a duplex, in which we will live in one of the units. This satisfies both my desire for a multi family, and my fiance's desire to feel comfortable and not feel like we're living in an apartment.

The ultimate goal is to cover the mortgage, after the 50% rule, and save the cash flow for a second property in a year or so.

I would love to hear from others who began in a similar fashion. Also, anyone who has experience in this market. Taxes in this area can be fairly significant so that is something I will have to consider when running the numbers.

Hey @Nick Payton welcome to the forum!

Buying a multifamily home and living in it is a great starting point!

I was in the same position as you a year ago. I ended up purchasing a 3 family with the first floor vacant. I moved in with my fiance and inherited amazing tenants on the 2 upper floors. I couldn't be more happy! Mortgage, taxes, and other expenses are completely paid for with rent coming in. If your looking into multi-families I would personally go for a 3 family since you will have 2 rents coming in instead of 1.

Have you looked into how much typical rent is in your area? Have you come across any properties that your looking further into?

btw.. taxes in CT are terrible. I pay 4800$ a year on a 160k home!

@Nick Payton - Welcome and congrats! This is exactly how I started almost 3 years ago. We bought a 3 units, lived in 1 and our tenants covered PITI - we saved and saved and bought our second about 18 months later and have been growing from there.

Brie Schmidt, Real Estate Agent in Illinois (#471.018287) and Wisconsin (#57846-90)

Hi Nick,

You fiancé is your world and her happiness is most important over any monetary value you feel you both might gain.

You have an idea at this point but like the real world experience to know if that idea is really something you want to do or not.

I would first look at where you want to buy what is the worst case eviction that would happen and how long does it take the courts to get them out?? It could be longer than you think. Next I would look at how much rent per door which will generally tell you the quality of tenant you will land. Low income rents have low income tenants and that spells out issues to deal with.

When you get married do it on the cheap. When my wife and I got married we had a wedding that looked like 20,000 for 1,500. Then we took a nice two week vacation. Had zero debt................. :) Friends can do the filming and photography. Instead of useless wedding gifts make a list of who do you know that does what that can offer their services to help with a part of the wedding. The last thing you want to do is be saddled with huge wedding debt and struggle with that versus investing. Also if either of you are going to college make sure the profession pays off well and you can retire student debt fast. Otherwise you do not want to build up debt that you can't get rid of and only land a small income job of 30k to 40k a year. I would get 4 unit over 2 because of breakeven occupancy. You could request a gift from your family early for the wedding as a down payment on a property. The 4 unit gives you better break even occupancy to pay the mortgage.

For those willing to make those small sacrifices buying a Multi unit to live in can work out very well. Also great for folks without kids or kids too young to be in school as the neighborhood type doesn't matter.

I'm part of the club too, love my fourplex and the fact I put 3.5% down to own it. That is a huge advantage for the newbie.

Financial security is a great wedding present!

@Michael Lebeau

Thanks for your input. Yea, I think Jersey taxes are pretty much in line with Connecticut. I probably would be looking at a similar tax ratio. I like the idea of 3 and 4 unit properties, however; most are double the price of duplexes so I'll have to run the numbers. We are 6 months away from this purchase so I'm getting a head start. I grew up in this area so I'm very familiar with rent.

For instance, a duplex in this area is on the market for around $200,000. I could easily get $1200 per month in rent. I'll be using an FHA loan, so I'm ballparking the mortgage and taxes to come in around $1500 per month. This particular example doesn't appear to be a good investment, even when we eventually rent out the second unit. But this is just one example at the typical price ranges I'm seeing so far.

@Nick Payton  welcome to BP and congrats on planning out the next chapter of your life with your fiance. The area you are looking in can be tough for cash flow due to high taxes but since you are planning on living there I would look at this a little different. Since this is your primary residence you know you have the opportunity to put a low down payment and get a great interest rate for a long term loan. I think this makes for a no brainer and say go for it. Good Luck!

Originally posted by @Nick Payton :
@Michael Lebeau

Thanks for your input. Yea, I think Jersey taxes are pretty much in line with Connecticut. I probably would be looking at a similar tax ratio. I like the idea of 3 and 4 unit properties, however; most are double the price of duplexes so I'll have to run the numbers. We are 6 months away from this purchase so I'm getting a head start. I grew up in this area so I'm very familiar with rent.

For instance, a duplex in this area is on the market for around $200,000. I could easily get $1200 per month in rent. I'll be using an FHA loan, so I'm ballparking the mortgage and taxes to come in around $1500 per month. This particular example doesn't appear to be a good investment, even when we eventually rent out the second unit. But this is just one example at the typical price ranges I'm seeing so far.

Make sure to write all of these numbers down on a spreadsheet. Do the math out to get exact figures. Then compare that with other properties. Also look into the surrounding market for comparable rents just to make sure $1200 is accurate. Is $1200 average rent for a 3 bd? 2 bd? just out of curriousity how much more is a 3 family vs a duplex?

@Brie Schmidt

Thanks Brie! That's my plan as well. I told her to give me at least 5 years to get her into her dream home. Until then, we'll be live in investors.

@Joel Owens

Thanks for the input. I'll add the eviction research to my list of red flag items I'll need to look into. I also included how the units are metered, proper zoning/permits, and getting insurance quotes and proper handyman or construction partners.

We are lucky enough to be getting most of our wedding paid for from family. However, we do have some student loan debt. More me than her. I just turned 30 so I'm doing good in my day job, making a 6 figure income, which allows me to also put aside a little money for investments such as this.

It sounds like the consensus from the responses to get as many units in my first property as possible. Thank you.

@Michael Lebeau

It can vary greatly based on which town you're in since we're just outside of Philadelphia. I'd say the typical 2 bedroom can go for $1200, 3 bedroom probably arond $1500. I've seen as much as $2,000 for some 3 bedrooms but thats on the high side.

I haven't seen too many 3 units on the market that are appealing as of now. There is one in Haddonfield, NJ that I love but it has already been completely renovated and I would be buying it at its max potential, which I dont want to do. It is on the market for $440,000. I could probably get around $1500 per unit. If I were to live in one of them, that means $3000 per month before the 50% rule and the mortgage alone would probably cost around $3600 per month. Not the right investment, but that's an example.

Nice job Nick - Keep in mind that with a more expensive 3 or 4 family the bank will account for the additional rents to help you qualify. So, it may be just as easy or easier to qualify for a more expensive house!

Originally posted by @Nick Payton :
@Michael Lebeau

It can vary greatly based on which town you're in since we're just outside of Philadelphia. I'd say the typical 2 bedroom can go for $1200, 3 bedroom probably arond $1500. I've seen as much as $2,000 for some 3 bedrooms but thats on the high side.

I haven't seen too many 3 units on the market that are appealing as of now. There is one in Haddonfield, NJ that I love but it has already been completely renovated and I would be buying it at its max potential, which I dont want to do. It is on the market for $440,000. I could probably get around $1500 per unit. If I were to live in one of them, that means $3000 per month before the 50% rule and the mortgage alone would probably cost around $3600 per month. Not the right investment, but that's an example.

200k duplex vs 440k 3 family.. thats a huge gap! Don't stop looking though! I bought my 3 family and put months of work in myself. Installing 45 windows, complete demo of 1st floor bathroom and kitchen are just a few to name, and I have very little knowledge in construction. You'll come across properties that are priced right with little work needed.

Closed on our first Triplex last month. Inherited a few bad tenants, but all in all it's been great so far.  Nice to see other RE investors who started similar. 

Wife and I just bought our 4 family late last year, we live on the top floor and love it, the 3 other units cover PITI plus beer money every month. I've had rentals in the past so I'm familiar with landlording, the smartest thing I did was prepare my wife for how bad landlording is going to suck, primed her for worst-case, told her horror stories, etc. So far, she doesn't hate it and we've even had an eviction already, she even went to court and handled it herself!

The other thing to think about is, to satisfy OOC requirements, you're going to have to live there 1-2 years, depending on the mortgage and 2 out of 5 years to satisfy capital gains if that's a consideration. Make sure you like the house you're buying, the neighborhood you're buying in and can live with the tenants that are already in place. You don't have to be buddies with them, and I actually recommend you don't become too friendly with them, keep it polite and neighborly but professional. It's very hard to tell your friends to clean up their unit, turn music down, charge them a late fee or especially evict them! 

When you are looking at units and ready to make an offer, you're (most likely) going to need to find a building with a unit you can occupy within 3 months of settlement. We had to pass on a triplex because all 3 units had tenants in with leases that didn't end within 3 months of our settlement date. The mortgage co will want to see leases to credit the rents towards your income and to ensure one of them is moving out within that 3 months so you can occupy the unit. 

Lastly, separate utilities are a must in my opinion, unless you're updating the building and that's in your budget, look for a building that already has separate electric and heat. Water may not be able to be separated, depending on locality. There's nothing more frustrating to me than going into a unit I'm paying for heat in and seeing the thermostat cranked to *80, windows open and it's *20 outside. 

Read up on landlord tenant laws and like someone else mentioned, know how tenant-friendly the area you're moving to is. Good luck and keep us posted!

Thanks Troy! All good suggestions. I think I may have seen you talk about separate utility metering in previous forum topics. I'll be sure to make this a top line item.

Since you are from the area, you'll know a little more about where I'm looking. I used to live in Collingswood and it is a great up and coming city with older homes that I believe can be reasonably priced when looking for the right deal. That is where I'm focusing. The soon to be wife is very adament that she doesn't want to live in a crummy place or area, so I have to find a balance between a good investment and a property that is in reasonably good condition.

@Nick Payton  

Grew up in a 2 family. My first house was a duplex a long, long time ago.

3 familly are better than duplexes. Check HUD owner occupant gets first crack.

Learned by school of hard knocks.

You are blessed to the BP community learn from it.

Paul

Nick congrats. If I would have know what I know now thanks to BP I would have purchase a multi-family instead of the single family home I just bought. BP is a great site tons of great information.

Congrats on the purchase and family. I know it is harder to find duplexes and triplexes in the suburbs but it seems like Woodbury has a few also, great luck.

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