All Forum Posts by: Benjamin Aaker

Also consider that it would be unusual to do three separate boilers. If you put in one, how will you bill back the tenants for the gas bill or do you plan to pay it yourself? Separate electric baseboard heat is an easier way to have the tenants pay for their own heat. You should check what the rest of the multifamily units in your area are doing. This will have a big effect on tenants you can attract. I live in South Dakota where it gets extremely cold. I have one building heated by boiler and another with electric baseboard. The expenses(to me) are much lower in the electric one and I don't have any trouble getting tenants for either.

Also, get rid of knob and tube but make sure it doesn't brake the bank first. That can get very expensive.

Hi @Matthew Wright, indeed there are conventional loans for > 4 units. These loans aren't backed by the government, so the scrutiny is done by the bank to see if the property (and you) are worth their investment. To compensate for this risk, you will have to put more money down (at least 20%) and the interest rate will be higher than Fannie/Freddie, which we call institutional money.

An institutional loan will have better terms, but they will look at your history as a landlord, the property's history, and will add a prepayment penalty. If you can meet their criteria, their product usually beats the bank. They want to have their investors make an expected return on their money, and the prepayment penalty helps insure that. If you plan to hold it for many years, the penalty won't be a problem. If you do plan to sell the property, that prepayment penalty might cause you a problem. The loan might be assumable (able to pass on to the buyer) but the buyer might not like the terms because interest rates have gone down. The buyer pool shrinks and the value of the property does along with it. 

Hi @Deonte Palmer, banks look at a 4 plex that you will live in as a residential purchase and it can be a great way to put low money down into a property that you can manage while living in it. Valuation is all about what others think the property is worth and on those small multifamilies, the market generally favors the market approach (uses comparable sales to arrive at a value).

In the market today, the values are generally higher than an investor would normally be interested in, but if you are living in one unit it can still be a great investment. As an investor, you also need to use the income approach. That place better generate some cash flow or you won't want to invest in it. It gets muddier if you will live there, because you aren't generating rent, but you are getting the mortgage paid. You should estimate what a tenant would pay for the unit you will be living in when using the income approach. 

Great question Isaac,

Make sure your wife and kids are really, truly interested in living right next to another unit. If they are, then go for it. This can be a great way to get into real estate investing. I recommend to start with a 4 unit rather than 2. The work with the bank is the same and you can double the income.

The moratorium is a risk, but there are usually programs to help the tenant pay rent. In fact, the federal moratorium requires that they have been trying to get assistance or you can still evict. Make sure you know about the rules in your area and pay careful attention to whether the current owner has been collecting rent. If not, then you might want to skip it.

Make sure it is clear in your leases who gets the garage. Better yet, whichever wants the garage can pay a monthly fee for it. Agree with Johnathan, if the numbers work then the garage is not critical.

Hi Tyler. It's great to have you here on BP. Getting started at 18 is a fantastic idea. Take out a credit card or a couple and pay them off diligently every month. Get that credit established so when you find a property you are in the best position. Start talking to a banker right now about that. Figure out your long-term goals. I can't stress that enough: if you have the long-term goals planned out you can work backward to find out what to do today.

Find that first property and house-hack with an FHA loan and low money down. This will start to give you experience as a landlord. Banks love that almost as much as your credit score! Also, read a bunch. Good luck!

When you say 0-2% are you talking about return on the cash you are putting in? Cash on cash return? Pay very close attention to the projected expenses. It will be very easy to have a bad day and put in a new furnace and wipe out all the cash. That is probably too great a risk. Don't bank on appreciation.

Hi Igor, welcome to BP. Great move getting into the larger multifamily! The Midwest is a great area for that kind of investing.

These old houses can have charm, but it seems to me what you are finding is old houses that have been divided up into units. We have a lot of these in my area. They did this to fit a lot of people in these houses as wealthier people moved out of the old city. The remodels didn't usually pay much attention to charm. Most have strange layouts that were shoehorned into the old mansion. These places usually are advertised with a high cap rate but they often have a lot of capital expenditures needed (which are outside of the NOI and don't affect the cap rate). I think these are more time-intensive to manage but if you are willing to do so and can handle surprise expenses, money can be made.