Massachusetts Multi Family Investing Help

[J K]

All,
First post for me but from what I have read thus far, this forum is great.

I live and work in Massachusetts in the Financial Service industry and have amounted a small (>100k) in cash over the last couple of years. Over the past three years, I have been wanting to purchase a 3 family home as an investment. I do not plan on living in the building, but renting the all three units. Im not in a huge rush to purchase, but with the decline in the overall real estate market, I am starting to see multi family's for prices they haven't been at in 5 or so years.

The short of it is, I am looking for advice on purchasing multi family's for a long term investment. I have the financing all in line so Im looking more advice on what to look for in a multi-family, where one could run into issues (zoning, repairs, etc) and what is a good annual rate of return on the rents vs expenses.

All and any advice would be appreciated.

[Jon Holdman]

JK,
Assume that all expenses, not including your mortgage payment, will be at least 50% of the rent. In a well managed, well maintained property you can keep them to 50%. They can be much higher, even over 100%.

Don't try to itemize them out, because they can be very irregular. If you have a 100 unit complex, then the large number of units will tend to smooth the expenses out. With a three unit (triplex), the expenses will be much lumpier. At some point, you will have to spend for major items like boilers or roofs. Many years you will not. But, if you budget 10% for maintenance, and you don't spend it, you better be socking it away for the years when you do. With 100 units, one's always going to be in the middle of an eviction, another's going to be trashed, or whatever the proper numbers are. With three, you may go several years without an eviction or a tenant who makes a mess. But, when you hit these problems, they will really hurt.

Find a place where you can make money if you assume expenses are 50% or whatever the current owner can document (whichever is higher) AND 100% financing.

If you manage the property yourself, assume about 10% of gross scheduled rents for management fees back into your pocket. Note that money is for being a property manager and not on the investment itself. Absolutely nothing wrong with that, but you will earn that money.

While I agree that jgfichte that waiting and analyzing for too long is bad, jumping headlong into a bad deal is even worse. Lost opportunities are easier made up than lost money.

Assume no appreciation. The appreciation we've seen over the last eight years has no historic precedent [ref: Case-Shiller], and is likely to have to be worked out of the system before we start seeing appreciation again. Find properties that make money right now.

Jon