Is buying a six unit building a good first investment?

[Cody Taylor]

Hello everyone, I am just starting out and have my financing in order to buy my first rental property. With that being said, I believe I have found a good deal on a six unit building that currently has tenants in all 6 units and from the calculator appears to be cash flowing at current rent rate. It appears that the rent rate is low for the area and could be increased once minor renovations take place. I guess my question is would it be wise to purchase this property as a first time buy? Any help would be appreciated, Thanks!

[Account Closed]

Quote from @Cody Taylor:

Hello everyone, I am just starting out and have my financing in order to buy my first rental property. With that being said, I believe I have found a good deal on a six unit building that currently has tenants in all 6 units and from the calculator appears to be cash flowing at current rent rate. It appears that the rent rate is low for the area and could be increased once minor renovations take place. I guess my question is would it be wise to purchase this property as a first time buy? Any help would be appreciated, Thanks!

The big question is, and we can't answer for you, will you hire a property manager and pay them 10% or will you manage the property yourself including tenants, toilets and trash?

[Allan C.]

@Cody Taylor I think it’s less about the operational aspects of managing a 6-unit, but the financing that carries a higher entrance hurdle. Do you already have a commercial lender lined up and understand the loan origination and maintenance process?

Lending rigors aside, have you researched all the potential licenses required for renting a commercial multi family property in your location?

[Cody Taylor]

Quote from @Account Closed:

Quote from @Cody Taylor:

Hello everyone, I am just starting out and have my financing in order to buy my first rental property. With that being said, I believe I have found a good deal on a six unit building that currently has tenants in all 6 units and from the calculator appears to be cash flowing at current rent rate. It appears that the rent rate is low for the area and could be increased once minor renovations take place. I guess my question is would it be wise to purchase this property as a first time buy? Any help would be appreciated, Thanks!

The big question is, and we can't answer for you, will you hire a property manager and pay them 10% or will you manage the property yourself including tenants, toilets and trash?

I would be hiring a management company as I do not live in the area. 

[Cody Taylor]

Quote from @Allan C.:

@Cody Taylor I think it’s less about the operational aspects of managing a 6-unit, but the financing that carries a higher entrance hurdle. Do you already have a commercial lender lined up and understand the loan origination and maintenance process?

Lending rigors aside, have you researched all the potential licenses required for renting a commercial multi family property in your location?

Thanks for the response @Allan C., I have financing available, however your point about it being commercial financing has me wanting to confirm I can use it for a property like this. I will call and find that out today. As far as licenses I have not looked into that as I had no idea I would need them. I appreciate your response so that I can start looking into these things!

[Eliott Elias]

It would be unwise not to seize an opportunity when you see it. Make sure you can actually raise rents and you are cash flowing enough to where if you have one vacancy you can stay afloat. 

[Andrew Carlson]

@Cody Taylor

Yes! Go for it. Don’t let people fool you into thinking there is something mystical about it being a commercial deal. Collect the rent, pay your bills. Bingo bango bongo.

[Account Closed]

Quote from @Cody Taylor:

Quote from @Account Closed:

Quote from @Cody Taylor:

Hello everyone, I am just starting out and have my financing in order to buy my first rental property. With that being said, I believe I have found a good deal on a six unit building that currently has tenants in all 6 units and from the calculator appears to be cash flowing at current rent rate. It appears that the rent rate is low for the area and could be increased once minor renovations take place. I guess my question is would it be wise to purchase this property as a first time buy? Any help would be appreciated, Thanks!

The big question is, and we can't answer for you, will you hire a property manager and pay them 10% or will you manage the property yourself including tenants, toilets and trash?

I would be hiring a management company as I do not live in the area. 

It is unlikely to cash flow then. First, find a property management company and ask what their fees are, how much to fill a vacancy, how much to handle repairs and so on. Then include that in your calculations. You also need to get a handle on occupancy rates for the property. Also have an inspection to figure out what the condition of the roof, heaters, AC Units, wiring, plumbing, scope the drain and so on. 

[Drew Sygit]

With no numbers, how can we give you any feedback?

Post the BP Calculator sheet you ran.

[Andrew Prior]

For people who access to limited money I recommend getting FHA loans on small multifamily (1-4) units. You have to live in a unit for a year but the down payment is as low as 3.5%. rinse and repeat.

[Craig Clinton]

If I understand correctly, you're just asking if it's wise to purchase a commercial property (> 4 units) as a first time investor, as opposed to a 1-4 unit.  Assuming your numbers are correct, yes you should do it!  Many investors start off with 1-4 units and then get into commercial and wish they started out in commercial.  You're skipping to the next step.

Keep networking and keep learning.  Good luck.