I am getting ready to make my first investment, and scouring through a few markets in the area for a 2-4 unit house. I plan to occupy one unit with my family. I have been mainly coming up with homes that will reduce my current rent, but almost none that will produce a positive cash flow.
I am not opposed to a reduced monthly expense, however would it be wise to stay patient and keep looking around for something that cash flows.
It makes sense to wait until you find something you're comfortable with. Reducing your rent is nice, but what happens when one of the tenants fails to pay their last month's rent, leaves the place trashed, and it takes you a month to turn it around and find a new renter? A single tenant - even in an apartment - can cost you thousands of dollars in losses before you can say, "I don't know what I'm doing!"
I recommend you wait until you find something that cash flows so you have funds to set aside and deal with unforeseen issues. If you aren't finding them on MLS, try different methods to find off-market deals:
- Tell everyone you meet what you are looking for
- Drive neighborhoods you are interested in and look for neglected or abandoned properties. Search BP forums for "drive for dollars" to get more detailed ideas
- Buy a list of multi-family properties with absentee owners and market to them via mail
- Try to find another agent that is more investor-aware that can help you search
- Find a local investor group to network (you should be doing this anyway) and try to find deals
You can not expect to “cash flow” when you have a permanent minimum 25-50% “vacancy factor”.
While it’s great to find a multi-family that will pay your rent AND cash flow, it will probably be unlikely or take a lot of work/luck to find one.
Remember, even though you might have $0 cash flow (or negative) you need to remember that you are actually getting the cash flow for your side too. They are paying for you to like rent free!
Most owner occupied duplexes typically won’t technically cash flow, but spending $400 on ‘rent’ for a $1000 place still seems like a good deal!
2 unit, owner occupied = reduced owner contribution
3 unit, owner occupied = no owner contribution
4 unit, owner occupied = small cash flow
These are my guidelines, but it depends on the price you pay, and assumes 100% tenant occupancy.
@Colby Todd - I'm in a similar situation in central NY trying to get into my first small multi. I have found nothing thus far that I would like to live in, in this area, where the numbers kinda make sense. Duplexes just won't flow around here but a larger one (6bd min) might get you to break even. I'm looking at it from a "minimize expenses" perspective in order to get into the game and learn (hopefully break even) then build from there as I've been looking for well over a year now.
To complicate matters, I'm also looking for private funding to make it happen so if you're able to go the normal route, more power to you!
Best of luck to you! Let us know what happens.
@Rob Sawyer good to know there is someone doing the same thing as me. I’m looking at it the same way, I’m not going to bring my family to an undesirable area for their sake, and I look at reducing expenses as a positive, as for at least a first investment moving my money positively is a step forward
@Colby Todd - Agreed! Def won't be the smartest deal we ever make but it's still a start. We'll do better in the future! Sent you a PM as well.