How do you know what you want?

Question

Hello all! I'm new as of today, and have just started researching multi-family property rentals as an investment option. I read through a lot of the step-by-step blogs, but I'm having trouble figuring out what specifically to look for or what I should ask a real estate agent to help me look for.

How do you guys feel about:

*duplex vs triplex vs four-plex

*house w/ a carriage house or granny flat

*house that can be split into vertical apartment levels w/ outside stairs (I lived in a 3 story house in college. The landlord had the main floor, another guy had the 2nd, and I had the 3rd floor/attic. Each was a separate housing unit with outside stairs for access, a shared backyard, and shared pay laundry services in the sunroom on the main floor)

*land that I could build a couple carriage houses on and rent out

*one large house where I would live with the tenants

Any advice would be appreciated. Again, I am very new to this and still a bit nervous about taking suck a big step.

Larissa

Jeff B. · Answer

I'm a buy-and-hold investor; I hold a 6 unit mfu currently.  When I bought it, I insisted on a positive cash flow day one and to know the break-even occupancy.  Once you set that as a criterion, dup,trip,quad or any thing else isn't the question.  The question for every investor imo should always be "What's the Cash Flow?"

I've developed a spreadsheet to evaluate GSI, NOI, GRM, DSCR, CashOnCash, & CapRate.  I'm creating a website for it, but once you learn the terms and formulas, you can run the numbers for yourself on a napkin over donuts and coffee.  I'll not create a conflict of interest here by citing the URL.

btw: CashOnCash is basically your ROI for your down payment and should be compaired to the interest rate offered on some CD.  Of course, they don't compare at all in todays markets.

Andrew Meyer · Answer

I agree that cash flow is the first thing I look at. The I check out area. Great cash flow on paper can be a terrible deal if it's in D or even c type neighborhoods.

There are limited MFH in my area on market, so I have pretty much analyzed any MFH on my market. So then I'll figure the best deals in the areas I want to purchase in.

Andrew Syrios · Answer

I would prefer a fourplex over a duplex and a standard multifamily versus a conversion, but it all comes down to how good the deal is. The main thing I would look for is cash flow; namely the cap rate with two caveats; 1) It needs to be in at least an OK neighborhood and 2) It should have some sort of "value add" opportunity, say you can raise the rents, or transfer some utilities from the owner to to the tenant, etc.

How do you know what you want?

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