My plan thus far... What do you think?

Question

So I took some time to evaluate my strategy. I made a couple of changes, but for the most part, I think I may have a plan...

I am going to buy and hold my first property very soon. (the search has already begun) I a looking for multi-unit properties between 20k-100k max. I am willing to do a rehab is necessary, as i will need the experience eventually. I have found a few working class low income neighborhoods that I am interested in, and i have be very conservative when crunching numbers on what i may consider a good deal.

$100.00 per door cash flow after all expenses are covered, is what I would consider a great deal (@Brandon Turner ). To add to this strategy, the $100 per door cash flow has to be from the property operating at the next lowest rent rate offered in the area. To elaborate on this, in the area i am looking to farm, a 3/1 would rent for around $1100. A 2/1 would rent for about $900. My potential 3/1 units have to produce at least $100 per door at $900 rent in order for me to take the next step. I have thought that this may be too conservative of an approach, but I won't find out until I make offers.  I personally feel that this strategy would also give me more of a competitive edge with my units.

I would like to get feedback on this section first before I bore you with the next section of my plan. Let me have it, and thanks in advance!

Michele Fischer · Answer

I'd like to see a multi you can find for $20K.  We bought a duplex for $44K at the bottom of the market and it was quite a disaster with sloping floors and enough nicotine on the walls to give you cancer!  In my market I can make your targets on the properties we are managing, but would have a hard time chasing that at the entry point since I'm so conservative on the rehab costs.  Are you planning to live in one of the units?

Derrick Craig · Answer

Christopher M.

I like the plan take advantage of living in one unit and renting out the other 3 units in the 4plex. Only downfall is being a land lord next to you tenants they can get on your nerves if you know what I mean. LOL!! If you are finding a 4 plex for $20k in working class neighborhoods I applaud you, I only found those in non-working class neighborhoods here in Memphis.

Good luck investing,

"The best way to predict the future is to invent it"

Alan Kay

Christopher Malone · Answer

Matt R. Hello Matt, yes I will be self managing, at least until my business scales enough where I cannot continue to. I will be using a Conventional Investment loan with the community bank that financed my car. But... The more I research 203K loans, the more my interest is peaked in taking this route, as i currently do not own a home, and this would be my 1st :).

Christopher Malone · Answer

@Derrick Craig

Thanks Derrick. I've only found  2 so far. 1 was listed at 60k and put under contract almost immediately. The 2nd is 65k in a rougher neighborhood, and would need a ton of work. Far more than what i would be ready for. The sub 30k idea probably will not work for 4plex's/flats. If I did pursue one of them, the repair cost could easily get up in the 100k range. Rehabbing a 4 flat for less that 200k would still be better than buying 1 retail, as those prices are 275k and up. At least from what I have seen thus far.

Matt R. · Answer

Sounds good. I have not read the section 8 bible yet. If you have not already,  check this thread out on how to bullet proof rentals from floors to ceilings.

http://www.biggerpockets.com/forums/52/topics/6804...

Thanks again,

Matt

Christopher Malone · Answer

@Michele Fischer Your correct Michele. The multi-units I have seen on the MLS are a disaster, but they are in working class neighborhoods that are clean in well kept. In the low income neighborhoods I am farming in, these areas are far and wide, but they do exist. Some are 20k not because they are a complete wreck, but because of the bad neighboring areas that keep people away from buying there. The banks are sitting on these properties and the wear and tear kicks in.

As far as living in them, this is an option that I am considering, at least for 1 year. If I do decide to go he 203k route, I would probably go bigger. By bigger I mean 4 units. If I find a deal that is worth using the 203k ace in the hole, i will take advantage of it.

Christopher Malone · Answer

Are we talking expenses such as month to month, or the unexpected expenses that occur annually? All of my month to month expenses will be covered by my gross income. I figured about 5% of the gross income per month would be stored for the unexpected.  I am currently reading the Section 8 Bible to learn and avoid as many expenses as possible.

Matt R. · Answer

Great. What kind of reserves will you have for expenses? Lets say per door?

thanks,

Matt

Matt R. · Answer

Hi Christopher, it sounds like a great plan so far.  Are you self managing? Are you paying cash? I think you can acheive $100 per door. I am interested in hearing about the phase 2 too.

thanks,

Matt

My plan thus far... What do you think?

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