New Investor: My plans for 2023

[Cody Hawkins]

Hello BiggerPockets community my name in Cody, I’m 23 and am just getting into Real Estate Investing. I was introduced to BiggerPockets by a former landlord and have been totally immersed in the Real Estate Rookie Podcast.

I am currently living in Ogden, UT but my girlfriend and I will be moving to Des Moines in June of this year. We have a savings plan in place and I have a new job with good pay and a substantial signing bonus lined up. This should put us in position to hopefully purchase our first property in the latter half of 2023. 

We are hoping to target small multi family units in Des Moines. Our plan is to live in one side and start with a long term tenant in the other side. We would like to transition to a medium term rental when we are able to furnish the unit. 

Thank you all for reading. I would love any thoughts, feedback, or advice from the more seasoned members of the community as I try to build my network. 

[Darson Grantham]

Long post alert! :).  Pros and cons of built for purpose AND pros and cons of Conversion rentals in Des Moines Iowa. @Cody Hawkins

Pros of built-for-purpose:

Age/condition: In Des Moines area, a built-for-purpose duplex is typically newer 1940 and newer, which means the issues that come up are issues a typical plumber can diagnose and repair with minimal tenant disruption.

Energy efficiency: Built-for-purpose duplexes are designed and constructed more energy efficiency in mind, which can lead to lower utility bills for tenants.

Tenant Profile: Typically because renting a built for purpose will seem more like renting a house than an apartment, commonly your tenants will be more qualified and you’ll achieve more rent.

Cons of built-for-purpose duplex:

Higher cost: At one point I rean the price per sq ft of built for purpose vs conversion and built for purpose was 2-3x the price per square foot. But don’t let that confuse you, that does not mean it is 2-3 x lower return on investment.

Fewer properties: I’m not sure if this is true data, but I’ve noticed over the last 5 years watching the Des Moines Market, many more converted properties come onto the market than built for purpose giving you fewer choices if that is the asset you want to choose.

Pros of conversion:

Lower cost: Back in the 70’s when most of these conversions took place, it was WAY cheaper to do that than build a new duplex from scratch. New duplexes today are selling for 275K per side and funny as that sounds, there are many investors buying those yet today!

Unique character: Older buildings often have unique character and charm that can be preserved during the conversion process.

Return on Investment: This is a broad-stroke statement, but the NOI on conversion will almost always beat a built for purpose on paper. In real life many investors will argue that repairs add up quickly depleting that NOI. Thsi will depend a LOT on the guts of the property and can only be determined during walkthrough.

Many more available: These come onto the market weekly and although not always everyone’s first choice, if correct due diligence is taken, are great first time investments.

Cons of conversion:

Wear and tear: Existing buildings may have wear and tear that needs to be addressed during the conversion process.

Quirky Layout: Since the design was left up to whomever originally converted the property, many of these are really strange and when you have strange layouts you get strange tenants.

City Rental License: Many owners of these properties do not spend money making them nice, they commonly have much differed maintenance and thus putting a target on their back from the city rental department. Now this can be alleviated if the property is unkempt, that doesn't remove the fact that the City of Des Moines in general is not excited about having conversions in their City. If a conversion doesnt get their rental licensed renewed, the city will not reissue a new one and that building will likely be turned into a single family home.

Inefficient systems: Older buildings may have inefficient systems such as heating and cooling that need to be replaced or upgraded.

Utilities paid by owner: In addition to the last bullet point, if you the owner are paying utilities and you have an inefficient house, that is costing you a lot of extra expenses that are not typical for a built for purpose.

With all this said, neither property is right or wrong, you just need to know the risks and rewards of each property. I’ve personally owned 4 conversions and sold dozens of them around Des Moines. It is very property specific, if you can find the right one, it will catapult your investing business, while buying the wrong one can frustrate you to no end!