Recent college graduate looking to get started into RPI

[Andy Chen]

Good Evening All, 

The reason I'm posting today is to seek for advice and tips to help me lay out a plan in buying my first rental properties (multifamily 2,3,4). 

First of all, sorry for the beginner questions I'm about to ask.

Background info: 

I'm 25yr(M) working as an electrical engineer ( with no real life experience in real estate market), living in NYC, currently have 20K saved up for down payment and will contribute 1k per month from now to late 2023. By late 2023 I should have saved around 32K + (borrowing 30K from my family)= total of 62K for down payment.

In the meantime I am trying to gain as much knowledge as possible about the housing rental investment and save up. I hope to start my plan in early 2024 after the housing market has cooled off, and the interest rates are back to 3%-4%. I'm interested in buying a multi-family house for my rental investment, also using the house hacking strategy.  

Questions: 

1. 1)How do I determine where's the best area to buy in? 
2. 2)I was reading “RPI” and it states the property is good to buy when it's 20% down its sell price, but how do I know if the sale price is too high or its avg?
3. 3)What's the pro/con of duplex,triple, and  quadplex? (other than risk)
4. 4)I'm currently working 40 hr on my main job, would I still have enough time to manage my rental investment? 
5. 5)Is it a good idea to start the investment with a partner? What's the pro/con of that? 

Thanks,

[Abel Curiel]

Hello @Andy Chen,

I totally agree with @Nathan A.'s advice here!

To answer to your questions:

1. As Nathan mentioned, the "best" area will depend on your goals. What I would do in your shoes is search listing sites (zillow, redfin, realtor, etc) to familiarize yourself with different areas. Focus on areas with a lot of small multi-family inventory since these are the areas where you'd likely be able to negotiate a lower purchase price. Areas with low-inventory are typically highly desirable but leave little room for negotiating due to limited competition. An investor-friendly agent can educate you on absorption rate, average days-on-market, and other variables you'll want to take into account. In my opinion, the outer-boroughs (Brooklyn, Queens, The Bronx) have the best opportunities because of availability of multi-family units and proximity to Manhattan. Suburbs (Westchester, Long Island, etc.) have opportunities as well though not as many as the outer-boroughs. In addition, the suburbs typically have 2-3X the property taxes compared to the boroughs.

2. Running comparable analyses on properties in your area of interest will help you determine fair market value for any property you're interested in. Your Realtor can perform these analyses for you. Also, if you do find a property and go under contract, the bank will hire an appraiser to verify the value of the property. This will insure you're not 'overpaying' for a property. Keep in mind, properties sold at 20%+ below market value typically sell to all cash buyers since these properties typically have tenant issues, deferred maintenance, and/or liens/judgements which banks shy away from. 

3. Pros: Rents in most small multi-family markets have steadily increased over the last few years and with rates remaining ~6-7% this year, rental demand should remain steady; House-hacking is the best strategy to lower living costs in NYC while gaining acquisition, project management and property management experience. 

Cons: NYC Rental laws favor tenants. This makes it extremely important for investors to have a strong tenant screening process & lease agreement.

4. Absolutely! There are several management platforms that allow you to streamline rent collection, maintenance requests and more. Saves you tons of time and allows you systemize your business from day 1. Once you move out of the property, you may want to hire a handyman, property management company and/or assign one of your tenants as the 'live-in super'

5. Whether or not it is a good idea will come down to your goals and having some type of operating agreement with your partner which specifically outlines scenarios/challenges you may face. Best to speak with an attorney about this. 

Pros: You can share costs with your partner which will allow you to save more and purchase more properties as time goes on.

Cons: Partner may not hold up their end of the bargain (expenses and other responsibilities). New York has different types of joint ownership and in some cases, you need to hire an attorney to settle disputes with partners when disagreements arise i.e. Wanting to sell; wanting to refinance; sharing responsibility for expenses; etc

Hope this helps!

Abel