Investor · RI · Member since 2014 · 45 posts · 7 votes
Hello everyone,
I am a newcomer to the world of real estate investing and am hoping this site can assist me in making educated decisions. I am looking to purchase a 2-3 family in Providence or Kent county and it has been quite difficult thus far. I do not have the deep pockets of an investor but do have general contracting knowledge so will most likely be looking at a fixer-upper. If someone has some advice for multi-family investing in the area of Rhode Island that would be wonderful. I'm still in my early twenties and just graduated college with a job right out the door thankfully. My reasons for investing are first of all my family and the fact that retirement in this economy is grim at best. I want a solid financial plan for our future, anyone with advice/tips please chime in.
Welcome to BiggerPockets @Tim G. Thanks for introducing yourself.
Have you thought about looking for a money partner since you don't have much to work with? Many people with money don't have the time or the knowledge to invest. So if you can put in the time, work on your REI education, and bring value to the table, you may be able to make something happen.
Use the search tool in the top right corner to look for some topics on the way people structure partnerships. Hope that helps!
Hi Tim-
I'd absolutely come to the meeting this thursday, and take anthony up on his offer for coffee! He's well versed and knows what's going on in the area.
Hope to see you soon.
Tim, I live in Rhode Island and have been investing here since 2004. I'd be happy to talk to you or get coffee sometime.
I also attend monthly investor group meetings with the RI Real Estate Investor Group (RIREIG) in Warwick - the next meeting is this Thursday in fact.
Hopefully I'll see you at a future RIREIG meeting, and if you're interested in connecting one-on-one sometime send me a private message.
Thank you for the offer Anthony and I will definitely look into going one Thursday. I work 40+ hours a week right now and have since I graduated college last February which has helped me to pay off all of my school loans and become debt free. At this point I am just working towards saving up funds to help in the purchase of a multifamily I decide on. I was working with RI housing and they have a product which offers 100% financing on a 2 family home only, any thoughts on that as a potential financial route? Of course if it was a 3 family it would still be a minimal upfront cost. I have just been trying to decide if a 2 or 3 family is a better option for my first investement.
Hi Tim, welcome to Bigger Pockets im a newbie aswell the BP community is a great asset to have. The members Are very friendly and have great advice. Good luck in your investing journey.
Tim, if you can qualify for a RI Housing loan that would probably be very attractive in terms of rate. You should still evaluate other options, like talk to a local bank or credit union (or mortgage broker) for comparing the rates, but usually RI Housing is very low - the trick is qualifying for it.
Also I'd suggest definitely reading all the fine print on their mortgage or agreement. For example, you may not be able to move out of or sell the property within X number of years (e.g., 5 years) without paying them off at a higher rate.
Years ago I looked into getting a low interest loan from RI Housing for renovating a house which had lead paint violations. Everything looked good until they sent over the paperwork, then buried about 3/4 of the way in was a clause saying I agreed to rent the units for X% below market rates and only to tenants that fit their definition of "low income". All of a sudden the low interest loan didn't look so attractive any more.
So I would say, if you qualify, awesome, they will probably beat any other lender's rate. But 1) check against another lender just to be sure, and 2) make sure you're not also agreeing to something - as part of the loan terms - that you're not going to want or be able to fulfill.
I wanted to get some advice on multifamily properties in particular if you don't mind. I'm basically considering a 2 family property in the RI area with 100% financing and full assistance through a local lender (ri housing and yes i will go over the loan documentation with a fine tooth comb) with virtually nothing coming out of my pocket. I'm of course looking for a place that will cover at least the mortgage principal and interest payments from the rented unit. I am totally new to this lifestyle but when i was considering buying a single family home I thought "why not have someone help pay the mortgage and minimize the costs of home ownership" by doing a owner/occupied setup (while the unit is not vacant anyways which I know a 10% vacancy rate at least needs to be factored in). I figured the "safest" bet was to start with a 2 family that needs minimal repairs and go from there. Rentals in the RI area are extremely high and for a 2br/1ba unit i could get at least $800+/month and I would be able to cover 100% of the mortgage if the units were vacant as i work full time during the day. The only thing i am concerned with is the profitability of the long term investment over time and what calculations i need to perform to project that. I am actively searching as we speak and have ran into several properties that did not work financially already due to factors such as flood insurance, high property taxes, to much rehab, and strangely rodent problems in particular areas as well.
Tim, if you can get 100% financing that's great - it gives you more money to invest elsewhere. Of course, it makes your loan higher which means higher monthly payments so be sure you can make those monthly payments.
Leverage is great, but it cuts both ways - it can magnify your return in good times, but it can also magnify your losses in tough times because you have a fixed payment that needs to be made every month whether the unit is rented or not, whether the rents are high or cover the expenses, or not.
I would caution you to ask yourself, if your other unit was vacant for 6 months, could you carry the loan payment on your own without difficulty?
If yes, then you're probably in a good position to take on that loan. If not, then you may want to re-evaluate whether it would be better to put a downpayment down (if you have it) to lower the monthly payment, or maybe look for a cheaper property (and thus, a lower loan amount).
(6 months vacancy may seem too conservative but believe me, I've seen 3 months before without extraordinary circumstances - tough rental market, area declines, you missed something that makes the unit a harder sell to tenants, departing tenant caused major damage that takes a lot of time to fix and then bring it back to rentable condition, you do things on your own so you save $ but it takes longer, etc.)
It sounds like you're comfortable with a 2 family and if you're just getting started that can be a good way to go. Just be careful that, as I said, you can afford the monthly payment on your own - the rent from the extra unit should be "gravy" (bonus), not needed-or-you're-in-trouble.
Also, while singles and duplexes are good for lower maintenance (tenants have a little more "owner" mindset), you'll also pay more per unit that way, mainly because you're competing with owner-occupants who are buying primarily for the "use benefit" (they like the house, the neighborhood, schools, etc.) and not looking at it as an investor. It sounds like a worthy trade-off for you, to do a duplex, especially if you're going to live in one of the units, but it's just something to be aware of.
I'm not sure what you mean about "profitability of the long term investment over time". If you mean, planning/projecting for a big profit down the road, I would forget about that. You're buying at a good point in the market cycle, if you sell down the road and make more profit, that's more "gravy" (nice to have), but don't count on it. Focus on whether the property will cash flow in the first couple of years and whether you can support the property if you have an extended vacancy.
Tim, if you can get 100% financing that's great - it gives you more money to invest elsewhere. Of course, it makes your loan higher which means higher monthly payments so be sure you can make those monthly payments.
Leverage is great, but it cuts both ways - it can magnify your return in good times, but it can also magnify your losses in tough times because you have a fixed payment that needs to be made every month whether the unit is rented or not, whether the rents are high or cover the expenses, or not.
I would caution you to ask yourself, if your other unit was vacant for 6 months, could you carry the loan payment on your own without difficulty?
If yes, then you're probably in a good position to take on that loan. If not, then you may want to re-evaluate whether it would be better to put a downpayment down (if you have it) to lower the monthly payment, or maybe look for a cheaper property (and thus, a lower loan amount).
(6 months vacancy may seem too conservative but believe me, I've seen 3 months before without extraordinary circumstances - tough rental market, area declines, you missed something that makes the unit a harder sell to tenants, departing tenant caused major damage that takes a lot of time to fix and then bring it back to rentable condition, you do things on your own so you save $ but it takes longer, etc.)
It sounds like you're comfortable with a 2 family and if you're just getting started that can be a good way to go. Just be careful that, as I said, you can afford the monthly payment on your own - the rent from the extra unit should be "gravy" (bonus), not needed-or-you're-in-trouble.
Also, while singles and duplexes are good for lower maintenance (tenants have a little more "owner" mindset), you'll also pay more per unit that way, mainly because you're competing with owner-occupants who are buying primarily for the "use benefit" (they like the house, the neighborhood, schools, etc.) and not looking at it as an investor. It sounds like a worthy trade-off for you, to do a duplex, especially if you're going to live in one of the units, but it's just something to be aware of.
I'm not sure what you mean about "profitability of the long term investment over time". If you mean, planning/projecting for a big profit down the road, I would forget about that. You're buying at a good point in the market cycle, if you sell down the road and make more profit, that's more "gravy" (nice to have), but don't count on it. Focus on whether the property will cash flow in the first couple of years and whether you can support the property if you have an extended vacancy.
Tim, if you can get 100% financing that's great - it gives you more money to invest elsewhere. Of course, it makes your loan higher which means higher monthly payments so be sure you can make those monthly payments.
Leverage is great, but it cuts both ways - it can magnify your return in good times, but it can also magnify your losses in tough times because you have a fixed payment that needs to be made every month whether the unit is rented or not, whether the rents are high or cover the expenses, or not.
I would caution you to ask yourself, if your other unit was vacant for 6 months, could you carry the loan payment on your own without difficulty?
If yes, then you're probably in a good position to take on that loan. If not, then you may want to re-evaluate whether it would be better to put a downpayment down (if you have it) to lower the monthly payment, or maybe look for a cheaper property (and thus, a lower loan amount).
(6 months vacancy may seem too conservative but believe me, I've seen 3 months before without extraordinary circumstances - tough rental market, area declines, you missed something that makes the unit a harder sell to tenants, departing tenant caused major damage that takes a lot of time to fix and then bring it back to rentable condition, you do things on your own so you save $ but it takes longer, etc.)
It sounds like you're comfortable with a 2 family and if you're just getting started that can be a good way to go. Just be careful that, as I said, you can afford the monthly payment on your own - the rent from the extra unit should be "gravy" (bonus), not needed-or-you're-in-trouble.
Also, while singles and duplexes are good for lower maintenance (tenants have a little more "owner" mindset), you'll also pay more per unit that way, mainly because you're competing with owner-occupants who are buying primarily for the "use benefit" (they like the house, the neighborhood, schools, etc.) and not looking at it as an investor. It sounds like a worthy trade-off for you, to do a duplex, especially if you're going to live in one of the units, but it's just something to be aware of.
I'm not sure what you mean about "profitability of the long term investment over time". If you mean, planning/projecting for a big profit down the road, I would forget about that. You're buying at a good point in the market cycle, if you sell down the road and make more profit, that's more "gravy" (nice to have), but don't count on it. Focus on whether the property will cash flow in the first couple of years and whether you can support the property if you have an extended vacancy.
Tim, if you can get 100% financing that's great - it gives you more money to invest elsewhere. Of course, it makes your loan higher which means higher monthly payments so be sure you can make those monthly payments.
Leverage is great, but it cuts both ways - it can magnify your return in good times, but it can also magnify your losses in tough times because you have a fixed payment that needs to be made every month whether the unit is rented or not, whether the rents are high or cover the expenses, or not.
I would caution you to ask yourself, if your other unit was vacant for 6 months, could you carry the loan payment on your own without difficulty?
If yes, then you're probably in a good position to take on that loan. If not, then you may want to re-evaluate whether it would be better to put a downpayment down (if you have it) to lower the monthly payment, or maybe look for a cheaper property (and thus, a lower loan amount).
(6 months vacancy may seem too conservative but believe me, I've seen 3 months before without extraordinary circumstances - tough rental market, area declines, you missed something that makes the unit a harder sell to tenants, departing tenant caused major damage that takes a lot of time to fix and then bring it back to rentable condition, you do things on your own so you save $ but it takes longer, etc.)
It sounds like you're comfortable with a 2 family and if you're just getting started that can be a good way to go. Just be careful that, as I said, you can afford the monthly payment on your own - the rent from the extra unit should be "gravy" (bonus), not needed-or-you're-in-trouble.
Also, while singles and duplexes are good for lower maintenance (tenants have a little more "owner" mindset), you'll also pay more per unit that way, mainly because you're competing with owner-occupants who are buying primarily for the "use benefit" (they like the house, the neighborhood, schools, etc.) and not looking at it as an investor. It sounds like a worthy trade-off for you, to do a duplex, especially if you're going to live in one of the units, but it's just something to be aware of.
I'm not sure what you mean about "profitability of the long term investment over time". If you mean, planning/projecting for a big profit down the road, I would forget about that. You're buying at a good point in the market cycle, if you sell down the road and make more profit, that's more "gravy" (nice to have), but don't count on it. Focus on whether the property will cash flow in the first couple of years and whether you can support the property if you have an extended vacancy.
Apologies for the multiple posts. The BP site kept timing out and giving me an error when I tried to post, so I hit Refresh, not knowing that the post apparently went through even though I was getting an error.
I don't seem to be able to delete the duplicates, only edit them... Actually after 15 minutes have passed I can't even edit them.
Can a moderator please delete the duplicate posts that the BP site posted on my behalf in this thread? (thanks)
Thank you very much for the advice and I understand regarding the multiple posts as it has happened to me before as well. After listening to some of the pod casts and reading through the ultimate beginners guide on this site, I have updated my investment plan. I believe it would be wiser to forget about a duplex at this point as there is no way it will generate decent cash flow unless i got it half market value. I am going to focus on a 3 family unit instead with an FHA and go that route as the cash flow will be much better. I would imagine its one of the harder properties to find in RI but am hoping some will come up. Whats your opinion on Providence? After looking at a couple of sites, it seems the appreciation rates in Providence are on the higher side compared to most other towns in RI. Of course the big problem in Providence is crime and getting in a decent neighborhood so that will be the challenge.
Tim, yes you will generally get better cash flow with a 3 or 4 family than a single or duplex. But as I mentioned, the tenants have a different mindset so it can be a bit more work to manage them. Good experience, though :)
Providence is big, so it really depends on the area. I know some investors who still won't go into Providence - a lot of folks were burned in the crash - but I think there are opportunities in every city/town. I wouldn't personally make a blanket statement, especially since there are so many different neighborhoods.
You'll get as good, or better, info being "on the ground" and driving through neighborhoods, and especially talking to neighbors, than you will by researching a city/town on the Internet and looking at "appreciation rates".
Talk to people, read the ProJo, check out the area yourself, to get a sense of what's happening and whether an area is improving or not. You can look at other indicators like sale prices, rents etc. but they shouldn't be the only part of the picture.
And of course, if you're going to live there you have to ask yourself if you want to live there. And similarly, how likely will potential tenants be to want to live there?
Tim, yes you will generally get better cash flow with a 3 or 4 family than a single or duplex. But as I mentioned, the tenants have a different mindset so it can be a bit more work to manage them. Good experience, though :)
Providence is big, so it really depends on the area. I know some investors who still won't go into Providence - a lot of folks were burned in the crash - but I think there are opportunities in every city/town. I wouldn't personally make a blanket statement, especially since there are so many different neighborhoods.
You'll get as good, or better, info being "on the ground" and driving through neighborhoods, and especially talking to neighbors, than you will by researching a city/town on the Internet and looking at "appreciation rates".
Talk to people, read the ProJo, check out the area yourself, to get a sense of what's happening and whether an area is improving or not. You can look at other indicators like sale prices, rents etc. but they shouldn't be the only part of the picture.
And of course, if you're going to live there you have to ask yourself if you want to live there. And similarly, how likely will potential tenants be to want to live there?
Anthony,
Thanks so much for the advice, I am trying to focus on either a 2 family with a townhouse style unit or a 3 family at this point for cash flow purposes. Although it seems the insurance on a 2 family vs. a 3 family can be significantly higher. The challenge for me is simply finding a property that can produce enough cash flow to offset the expenses and produce a profit even if it is minimal. There are several factors I am now considering when looking at a property in Rhode Island and a compromise will have to be made somewhere in order for this plan to work. Is it appropriate to add around $600/month on top of the mortgage principal/interest payments for insurance, taxes, etc? I have a perfectionist attitude towards things in life so maybe I am over thinking everything. I have narrowed down my price range to $150k-180k for a 3 family (or 4) and 125k or under if its a 2 family (125k-150k if its a townhouse as the rent can be significantly higher). I am trying to form the "road map" mentioned in the ultimate guide on the site here and as typical, its one of the hardest parts to figure out. Were pre-approved for 200k and qualify for 100% financing on a two family with the rent being factored in (of course I will analyze the approval thoroughly based on what you have told me). I really appreciate your help/advice as it has already helped me greatly.
Tim, I don't know that I'd say as a blanket, "just add $600". I think instead I'd try to break it down into the separate components.
For insurance, it sounds like you have a pretty good handle on the costs. I'm running about $1200/year for my 1-2 fams. My 3-unit is covered by the same mortgage and insurance as a 4-unit so I don't know the # for the 3 off the top of my head.
If you're seriously considering a specific building, you can get a quote from an insurance agent for an even more solid #. They'll usually get it back to you within 24 hours, and they're happy to do it since there's a good chance you'll end up giving them the business (principle of reciprocity).
Generally speaking, all your expenses will usually end up being about 40-50% of your income. You can get it lower than 40% if you're super aggressive about keeping costs down and especially if you do some stuff yourself, but in my experience that's a good range to use.
(Note: In my experience, add another 10% to the expenses if you have to pay for the tenants' heat. You'll be amazed at how wasteful people are when they're not paying for it... or maybe you won't be :)
I guess I'd also say, don't get caught up in "analysis paralysis" either. I'm a #s guy too, so I definitely understand where you're coming from, but there's also a point where it's more beneficial to just get started with a decent property, than to run more analyses trying to find the "best" or "most optimal" property.
Tim, I don't know that I'd say as a blanket, "just add $600". I think instead I'd try to break it down into the separate components.
For insurance, it sounds like you have a pretty good handle on the costs. I'm running about $1200/year for my 1-2 fams. My 3-unit is covered by the same mortgage and insurance as a 4-unit so I don't know the # for the 3 off the top of my head.
If you're seriously considering a specific building, you can get a quote from an insurance agent for an even more solid #. They'll usually get it back to you within 24 hours, and they're happy to do it since there's a good chance you'll end up giving them the business (principle of reciprocity).
Generally speaking, all your expenses will usually end up being about 40-50% of your income. You can get it lower than 40% if you're super aggressive about keeping costs down and especially if you do some stuff yourself, but in my experience that's a good range to use.
(Note: In my experience, add another 10% to the expenses if you have to pay for the tenants' heat. You'll be amazed at how wasteful people are when they're not paying for it... or maybe you won't be :)
I guess I'd also say, don't get caught up in "analysis paralysis" either. I'm a #s guy too, so I definitely understand where you're coming from, but there's also a point where it's more beneficial to just get started with a decent property, than to run more analyses trying to find the "best" or "most optimal" property.
Tim, I don't know that I'd say as a blanket, "just add $600". I think instead I'd try to break it down into the separate components.
For insurance, it sounds like you have a pretty good handle on the costs. I'm running about $1200/year for my 1-2 fams. My 3-unit is covered by the same mortgage and insurance as a 4-unit so I don't know the # for the 3 off the top of my head.
If you're seriously considering a specific building, you can get a quote from an insurance agent for an even more solid #. They'll usually get it back to you within 24 hours, and they're happy to do it since there's a good chance you'll end up giving them the business (principle of reciprocity).
Generally speaking, all your expenses will usually end up being about 40-50% of your income. You can get it lower than 40% if you're super aggressive about keeping costs down and especially if you do some stuff yourself, but in my experience that's a good range to use.
(Note: In my experience, add another 10% to the expenses if you have to pay for the tenants' heat. You'll be amazed at how wasteful people are when they're not paying for it... or maybe you won't be :)
I guess I'd also say, don't get caught up in "analysis paralysis" either. I'm a #s guy too, so I definitely understand where you're coming from, but there's also a point where it's more beneficial to just get started with a decent property, than to run more analyses trying to find the "best" or "most optimal" property.
Again, thanks very much for the advice. Great idea to check insurance rates as well. The example you spoke about will be a big help so I can determine what costs i need to look out for as well as which ones I can minimize to get maximum profit. Determining the breakdown for the various costs has been a difficult task as there is no clear cut answer. Financing is the task at hand now and like i said i am approved through ri housing but still would like some other options, could you recommend anyone in specific? (company/person). I want to maximize any possible grants/assistance being a first time home buyer I can. Ive heard of various grants up to 15k in Cranston but need to research other areas further.
Welcome Tim. There are a lot of super helpful people and great advice on this site! I’m a ‘fix and hold’ investor from the Bay Area in CA, and loving it! A lot of others doing flips, wholesaling, notes, everything.. A few tips..
You can tag people by typing @ before you type their name, then clicking their name when it pops up at the bottom of the message box. You can click on the ‘vote’ button if you like someone's post or is helpful, and there are ‘awards’ to earn on your profile. The "Learn" link across the top navigation bar has lots of great info, and most importantly, the BP members! Welcome to BP, and good luck on your investments!
Hey @Tim G. Thanks for jumping in and introducing yourself! If you haven't yet- be sure to setup some "Keyword Alerts" to get into conversation in your target area.
@Brandon Turner I see no point in going the multifamily route if I cannot make something every month or is this how everyone starts out? It seems every property is either "As Is", needs flood insurance, or is in a terrible neighborhood (for an owner occupy scenario for me and my family anyways). I am in no way getting discouraged I just want to make sure I am going about things the right way for my market segment and creating an effective strategy to be successful. Financially, since I just graduated college my real only option currently is a duplex as a 3 family + requires reserves, DP, etc... To be honest I am just sick of throwing away money renting which I have been doing for the last 4 years of school and want out.
@Anthony Thompson thank you for the leads, I'm working to see if I qualify for a 15k grant currently which would of course be a huge help.