Super Beginner Need Advice Purchasing and Rehabbing Multifamily units in Houston, TX?

Question

I am 22 and a recent college grad and just moved back to Houston Texas. The plan is to find a good solid job to build some capital quickly because I want to buy a and down the road some Multifamily units that I can rehab and then hold on for rental income. However I would still want to keep my fulltime job and have real estate be something I do alongside my fulltime job.

My question is with limited capital how could I best get started on this challenge? How do I get through the purchasing and proper funding to rehab a place? I would prefer to be able to have all the money needed to finish the rehab all the way instead of doing it in stages because I wouldn't want the property to sit for more than it has too.

I did take some classes on real estate finance and development in college, but I think it would help me the most if who ever answers my question assumes I don't know anything because I'm sure I'm missing a lot of information.

Thanks, joined BP just mins ago. Thanks for having me guys and gals.

Gordon T. · Answer

Will, I've gotten some pretty good info from the RICH club in Houston. The best thing I have learned is to network with others in the industry. I think we just missed a Houston Bigger Pockets meetup yesterday but there are a number of different events you can find with a simple google search.

Will Mancia · Answer

Thanks for all your guys reply, I think after reading some of the replys sometime like a 2 family is a fabulous place to start the very first project as opposed to something bug like a 4 plex. Also info about rental and resale rehabs being different is a good point and one that I will take into account. I think I will just try to meet people around town in real estate because I do plan to keep my "day job", but the more connections I make the better it maybe.

If you guys could, what are some national real estate groups that I should look to be a part of? Also if anyone knows of some in Houston Texas specifically that would be amazing.

I'm so glad I found bigger pockets because you guys are some of the most encouraging , helpful and thoughtful people I've talk to in online community forums.

Thanks again.

Larry K. · Answer

1. Keep your day job
2. Buy a 2 family in a transitional area you can afford without relying on tenant in other unit
3. Renovate while you are living there. Not having a short time frame will enable you be more choosy with your contractors.  Many contractors like to throw prices at the wall to see what sticks.  Don't let it stick to yours.  Do as much yourself as possible.
4. Rent one unit while living in the other
5. Rent the other unit
6. Move into a short term place (parents, rental wiith friend) to stabilize everything 
7. Buy another 2 family down the block and repeat the process again and again.
6. Potentially you could consolidate all the 2 families into a larger complex

You'll find yourself with a wave of money coming at you and equity sitting in all of these places.  Good for you to be starting so young.  You can do this.  It is your choice of where you want to be when you are 35.

Jon Holdman · Answer

Its really, really easy to go over budget when rehabbing.  Its really, really easy to think like its your house that you're going to live in and do a bunch of stuff that you like.  Every dollar you spend has to return more than a dollar when you sell.  Many improvements don't.

Right now its almost always cheaper to buy and rehab than to build.

Don't bother buying something, rehabbing it, renting it, then selling.  The rehab you will do for a rental is different than what you will do for selling.  If you rent a property for a few years and then sell, you'll have to do a sale quality rehab before you sell.  If you're buying rentals, plan on keeping them for the long term.  If you want to do fix and flips, get in and out as cheaply and quickly as possible.

When you buy with a tenant in place, you may be getting a good tenant or a bad tenant.  The seller may have just put a warm body in place hoping to get a better sales price.  IMHO, your best bet is to buy some place that needs a fair bit of work.  Enough that owner occupants will be scared off, so you have less competition when you buy.  Then do a rent level rehab.  Watch your costs.  Avoid "might as well".  Hoard your cash.

Will Mancia · Answer

Yes I know it isn't easy trust me. Currently my dad is rehabbing a single family and he thought it could be done with $40K, but now it's gone over budget and he's into the house for as much as if he would have just bought one that didn't need renovations probably.

I do have a question for anyone who could answer.

Thinking hold rental and then sell a few years later, Is it better and/or cheaper to find an empty lot and get a home and/or duplex built on it as opposed to buying a property that needs rehab work or again thinking rental property would it be best for a beginner to just buy a property that's already rented out and just needs some minor work?

Thanks in advance

Ken Latchers · Answer

#1 - I would spend 90+ minutes a day reading this site the threads/posts related to what you wand to do.

#2 - Open an account with a local, large federal creit union.  Or two.  They tend to be a lot easier to work with and more flexible than banks.  Try to get a mortgage through them.

#3 - With limited capital, I would probably buy a house/multifamily that needs rehab as owner-ocupied, fix it up while you are living in it.  Regular auctions are an easy way to get a house, but the problem is, a lot of the time if it needs a lot of work, many times it can be hard to get financing.

Having a job is a huge help, for qualifying

A lot of the fancy techniques peoplediscuss - hard money, private money, flipping, etc. sounds promising but can be hard to do first off.

Will Mancia · Answer

I see, thanks a lot for your thoughtful response Jon.

Maybe a duplex would not be a bad idea for some one young like me who might not have all the time in the world to completely oversee the project. My father has bought and renovated 2 SFH's for rental income, but he does it by hiring people to work on each individual project per day as opposed to per job. So I what I think could be done as a full reno in 3 to 5 months takes him 7 to 12 months to reno a 1200 - 1500 sqft SFH. So my next questions are the following.

How do you find a good contractor? Are reno's more cost effective or cheaper without a contractor? Should you pay people to work per job as opposed to per day?

Are FHA loans a good idea? Like I said I like/love real estate and would be happy to do it full time, but I need capital and so I will work for a few years so I'm still just doing my research here. However I heard FHA loans can be nice because of the low down payment.

How should you negotiate closing cost to minimize that total closing costs? (I am not sure if I am asking this question correctly but I am just curious how to pay a little as possible in closing cost.)

How can I calculated as accurately as possible even if it's a rough estimate what I should have for a Reno-budget and contingency budget?

Are there any other websites that are honestly good genuine websites where I could do learn about investing in real estate?

Thanks again Jon for your response and anyway else who pitches in some info.

Jon Holdman · Answer

The easy way:  Have enough cash for a 25-30% down payment plus the rehab and all your closing costs.  Experience helps.  Lenders want to see experience.

Not so easy:  Find an equity partner to provide the capital, you do all the work.  Experience really helps here.  Unfortunately, you're little more than a property manager, and you'll give up a lot of the income to the equity partner.  Way more than 50%.

Hard: Find a seller who's really desperate and willing to sell with some sort of 100% owner financed.  You'll still need rehab money.   And rehab on a multi is tougher than SFRs.  The building codes are more stringent and inspectors can be sticklers.

The realistic way:  Start with SFRs or duplexes.  Lots more properties.  Cheap and easy financing, unlike commercial financing you'll need on the multis.  No experience requirements as long as you have enough income to qualify for the mortgage without the rental income.

Do some reading in the rental property forum about the realities of this business.  SFRs also have the advantage of being able to sell fairly easily if you decide you don't like this business.