think I over researched . and now i'm confused .

22 Replies

are you better off when your new and green to getting duplexes and 3-4 bed units? or if you can swing in financially are you better off buying a complex? or say 16 - 24 units in a building? 

My theory is basically . One roof.. instead of 16 roofs.. or 8 roofs (Duplex).. repairs would be less??  etc. 

Everyone says . noobies should start out with 1 or 2 small properties etc.. 

I hate to waste time and money .. and if it's best to get a big complex or something full of units, cabins, condo's etc.. am I best off if I can swing it financially and just pay cash for a building full of units? if if at 1st i'm over my head..   I have friends who are contractors etc.. so I know I can call electricians, plumbers etc.. if need be. 

thanks

Frank:

The title of your post really made me laugh.....welcome to the club!! Many of us new people over analyze. I can't offer any constructive advice for your post. I hope you get good response!

Originally posted by @Frank Durham :

My theory is basically . One roof.. instead of 16 roofs.. or 8 roofs (Duplex).. repairs would be less??  etc. 

Except that your one roof is still 16 roofs....all connected.  Ever try to replace a roof on a multi just over one of the units?  They're all the same roof.  

Actually you have it backwards. You have 16 roofs with 16 SFH. When one goes bad, only one goes bad.

The biggest reason for starting small is it will scale down the mistakes you make on your property.

Let's assume your options are a 100K property or a 20-unit 100K property. Let's say you make mistakes that end up costing you 20% of your property value - both losses are painful, but it will be a lot easier to recover from 1 unit that multiplying it by 20.

Also what if you decide the effort is isn't worth the return, unloading the property will be more effort/costly on the bigger property.

While you miss out on big upside on a smaller scale, when do you think, you would be more likely to very successful on your very first property or maybe your 3rd or 4th.

Originally posted by @Chris D. :

Frank:

The title of your post really made me laugh.....welcome to the club!! Many of us new people over analyze. I can't offer any constructive advice for your post. I hope you get good response!

 Well i'm glad I could make someone laugh .. :) 

I suppose it's like anything.  We crawl before we walk, walk before we run, etc.  I invested in mobiles, then single-families, then multi-families.  It would be cool to skip 2 steps, but if you don't yet know how to swim, I probably wouldn't start in the deep end.  Consequences for the inevitable mistakes are more severe.  

That said, sweet terms coupled with a seller who can also walk with me for a while as I learn the ropes of that specific property and tenant-type may change my feeling.  Are you just speaking in generalities @Frank Durham ?  Or do you have a specific property, specific seller and specific terms you are considering?

Originally posted by @Jesse T. :

The biggest reason for starting small is it will scale down the mistakes you make on your ....................

While you miss out on big upside on a smaller scale, when do you think, you would be more likely to very successful on your very first property or maybe your 3rd or 4th.

Thanks Jesse, 

I fully understand what your talking about .. I guess i'm looking at this from a trying to save money aspect ..  I get the make a mistake on a one or 2 bedroom unit and it's not as big of a mistake as a say 16 or 20 unit place..  

I guess my thought was I wouldn't make a 20 unit mistake. .maybe a 2 or 3 unit mistake before I realized it was a mistake ..  ( least that was my thought ) .. 

I guess my thought process was that of camping.. when I first went to camp. I wanted to get a pop up camper. work my way thru. see if I liked it. 

well after researching. I realized that would be way to small for us. .and went to at least a 28 foot camper.. but than after 3 days of rain.. I realized that would suck no room to move around. gotta have one with  bump outs / pull outs.  more room .  so I ended up purchasing a 31' with a 13' bump out for the living room and kitchen ..

IF I had started small orignally I'd have wasted a lot of time and $$ .. 

The wife and I are hoping we can purchase something out right. and be able to live mostly off of the profits from the rental building.. we want our $$$ to work for us. not sit in an account collecting dust..  If I have to higher a property management company , that would be the trickiest part. getting a good reliable one. with No Mortgage. and 16 units. I'd suspect after expenses we'd have enough to live on comfortable?? course i'm making assumptions I know nothing about. just looks good on paper to me :)

Originally posted by @Steve Vaughan :

I suppose it's like anything.  We crawl before we walk, walk before we run, etc.  I invested in mobiles, then single-families, then multi-families.  It would be cool to skip 2 steps, but if you don't yet know how to swim, I probably wouldn't start in the deep end.  Consequences for the inevitable mistakes are more severe.  

That said, sweet terms coupled with a seller who can also walk with me for a while as I learn the ropes of that specific property and tenant-type may change my feeling.  Are you just speaking in generalities @Frank Durham?  Or do you have a specific property, specific seller and specific terms you are considering?

 I'm hoping to get a 'team' around me that knows what there doing despite my ignorance.. I mean i'm not totally ignorant to renting. i've been a renter :) .. and my family has rented. and evicted tenants. etc. so i'm semi familiar with that part . a bit.. and I"ve done some repairs etc.

I guess my ignorance is showing. I assumed I'd be able to talk to a few folks.. once I find the property . .post it here and see what folks say .. I thought Id get a property management company and check on the property and speak to a few tenants on occasion making sure PM company is doing there due diligence.. where I live now we have a 100% excellent PM .. and I may see if they can handle my units when the time comes.. 

was hoping to have enough units that the wife and I could live off the profits.. 

What is your goal?

I vote for starting small. Unless you are very frugal, you won't be able to live off of the revenue from a single, 16-unit building.
Originally posted by @Al Wilson :
I vote for starting small. Unless you are very frugal, you won't be able to live off of the revenue from a single, 16-unit building.

 HI Al, 

Now you have me concerned? .. you say you can't live off the revenue of a single 16 unit building?? 

i'm not sure what you consider frugal? but let's just say for fun.. that I rent the units out at say 650.00 each .. ( Up here that is like WAY LOW.. but let's just go with it.) .. 

20units x $650.00rent = that comes to $13,000 a Month.. Taxes.. about $8k a year. all tenants would pay there own electric / heat .. so even if I put HALF of that away every month.. for taxes and repairs etc.. I"m still walking around with $6,500 a month. I can live off of that without being to Frugal .. and I think putting $6500 a month off to the side to cover taxes and expenses for the property would be more than adequate enough to maintain the property and pay taxes.insurance,  etc..  

Remember Im' out right buying the building . no Mortgage .. and I missing something here?  is a 20 unit or 16 unit building NOT enough income to live off of without a mortgage on the property?

Originally posted by @Andy Robison :

What is your goal?

 MY goal is to find enough property I can pay cash for that I can live off of .. 

eg. spend  $500K For a unit or 2 or 3 .. so that I can have enough units to pay for the upkeep on the property, and still have enough to live off of.. that is my goal!!

IF I can do it with one complex.. and I must do it small and build up. I guess I could buy a few duplexes and or 4 unit homes.. get 2 or 3 of them pay for them outright..   and use those 3 properties to take out an advance or something to purchase a 4th and or5th. property and pay that off quickly.. and keep doing that .. 

again that method is if I can't get a complex of units 10 at least would be good to start. 

 but again i'm new at this and ignorant. and I realize that..  so what I think is doable may not  be so doable.. :) 

Whatever property you are looking at can be run through the Bigger Pockets rental property financial calculators.  After that, I would have my CPA go through the same exercise.  Be sure to include allowances for vacancy and capex.  Good luck.

Originally posted by @Al Wilson :

Whatever property you are looking at can be run through the Bigger Pockets rental property financial calculators.  After that, I would have my CPA go through the same exercise.  Be sure to include allowances for vacancy and capex.  Good luck.

 Thanks Al, that's defiantly a good idea. and I will run it thru BP when i'm ready .

If I were in your position of having enough money to buy something outright, I would be buying SO much more with financing!!  Is there a reason you think buying everything outright is better than financing them and getting more?? I'm just thinking this way for simple math: 

You have $500k.  You spend it all on one 16 unit complex, after expenses you net $6500/mo

OR

You have $500k.  You buy FIVE 16 unit complexes at $500k each with 20% down.  After mortgage and expenses on all of them, you net approx $17,000/mo......

As for the risk aversion, I am just starting out and I wanted NOTHING to do with SFH. I thought they were a waste of my time and money. Although, I have a lot of real estate knowledge from growing up with a broker as a mother and a contractor as a father so... I was pretty ready to jump into the game head first with 2 duplexes right off the bat. It's been just enough for me. I'm staying busy, learning a lot, but not too crazy.

I guess my thought process was that of camping.. when I first went to camp. I wanted to get a pop up camper. work my way thru. see if I liked it. 

Well after researching. I realized that would be way to small for us. .and went to at least a 28 foot camper.. but than after 3 days of rain.. I realized that would suck no room to move around. gotta have one with  bump outs / pull outs.  more room .  so I ended up purchasing a 31' with a 13' bump out for the living room and kitchen ..

IF I had started small orignally I'd have wasted a lot of time and $$ .. 

...

What if after spending $$$ on your 31' camper with 13' foot bump out your wife comes to you and says, "After spending a couple days in the woods I've discovered that I really hate camping..."

Now you're stuck with a very expensive asset that has a very limited market (very high net worth people who like camping and are willing to buy used) with very few liquidation options and takes over every square foot of parking space in your driveway.

The depreciation of your very large asset has probably already cost you more than the total cost of the popup camper and If you had bought a popup camper you could sell it on craigslist.

Start small.

@Frank Durham

 OK, so I guess you can sell a big camper on craigslist too, but the point is still valid :)

@Frank Durham

Buy something and get in the game.   A good problem would be having 100 single family properties producing you cashflow.  Starting out I wanted to own as many APN #'s I could borrow on and get my hands on.  Cutting your teeth on a dozen single family homes is a good place to start.  Action is key...


Frank

Another reason to "start small" is to build up your credibility as an investor/manager. The big thing I'd look at is if you can qualify to buy that apartment unit because of your lack of experience. Unless you have a great team (specifically property management) already signed up and ready to go, you may not be able to get the loan based on that risk.

Originally posted by @Bryan O. :

Another reason to "start small" is to build up your credibility as an investor/manager. The big thing I'd look at is if you can qualify to buy that apartment unit because of your lack of experience. Unless you have a great team (specifically property management) already signed up and ready to go, you may not be able to get the loan based on that risk.

 TOTALLY understood .. and I may have let some things out. 

I currently rent. where I rent the property management place is TOP NOTCH in my book!!!

I've been living here for over 5 years. and NEVER had a complaint about the management company here.. that being said. .I would talk to this management company to about managing my building(s) 

2ndly . ANY DEAL I do. i'm looking at this point at paying CASH for the building.. so if it works out to $400k  I'll pop it down and buy the building . . least that is my game plan I DO NOT PLAN ON FINANCING at this time. .. maybe in 3 or 4 years from now. after I've had my building(s) up and running well. I"ll take a bit of a loan out on it. and purchase another building or 2.. 

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Nice! Sounds like a great dilemma  ;)

Best of luck whichever way you go.

I don't think there's a problem going bigger quickly, but the smaller the property the smaller the mistakes. So I would stick to smaller properties, at least at first, to get your feet wet and some experience. Then, going into bigger properties makes perfect sense. (By the way, I would include a duplex as a smaller property.)

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