Crazy to consider multi-family property?

Question

As a beginning investor is it crazy to consider purchasing a 5-unit property - is it better to start with a single-family property? It seems to me if the 5-unit property is a sound purchase it would actually be less risky?

Opinions?

Kirk S. · Answer

5 Units are great. However as you probably know you are stepping into Commercial Property. 4 Units or less are looked at different for Finanacing also.
              Good Luck!

Gary Moore · Answer

There are costs in addition the the 4% fee but I would have those anyway. If I was managing the complex, I'd still have to advertise, I'd still have maintenance and all. There is no placement fee for the first 12 months or until we reach 90% occupied, whichever comes first. After that, placement fees are tied to occupancy not falling below 85%.

There is a bonus tied to expense reduction, project management of the current rehab and getting the occupancy up to 95% by June of 2009.

Beyond that and the other normal expenses I'd have even if self managed, it is 4% of collected rents.

Will Barnard · Answer

Gary,
In that area you mentioned (by the way, what area is it?), is that the only average charges from the PM on units of that size? In other words, do you also pay all costs such as advertising, payroll, etc. and are there placement fees in addition to the 4%?

Michael Rossi · Answer

Brandi,

If you find a great deal (one at a huge discount to retail value),  you can find a small local bank that will loan 100% of the purchase price (with a low LTV) with a commercial loan.  Of course, that will also require excellent credit.  Banks are still loaning money - in fact, they MUST loan money to stay in business.

Good Luck,

Mike

Will Barnard · Answer

Keep in mind that 5 units or more will require commercial loans. Also, you could always start out with residential multis like duplex and quadplex units. You can develope some experience without getting yourself too deep.

Will Barnard · Answer

If the owner is willing to carry, go for it! If not, you will have to come up with the money. It can be from your line of credit, HELOC, 401k, IRA (rules apply), or partner. If you have the "knack" for locating and negotiating great deals, money partners will jump on it.

Brandi T · Answer

It almost seems like a commercial loan will be easier to get except I won't have the 20% down.  Can the owner carry that for me or do I have to have the cash?

Brandi T · Answer

Thanks for the opinions - I think I will feel most comfortable with a SFH as my first property but will try to pick up a multi-family once I get the SFH rented.  My biggest problem will be the financing -  I don't have a pile of money for down payment.

Financing tips would be greatly appreciated.

Michael Rossi · Answer

Give me a break!

Mike