Next Steps after getting 1st Duplex Under Contract

[Ryan O'Malley]

Hi BP crew,

I am closing on my first investment duplex in Rochester, NY at the beginning of October (super exciting!) and want to make sure that I am keeping the ball rolling in terms of investing. I financed through FHA and am covering down payment and closing costs myself and am not entirely in a financial position to jump right into a second property right now if I were to utilize a conventional financing. I am wondering if anyone has any recommendations on the next steps to keep my investing momentum moving forward. Should I look at forming an LLC and then rolling the property into that? Should I start saving up for a down payment on the next multi-family? Does anyone think that it is more beneficial to go with single family rather than duplex-quadplex?

I am continuing to educate myself through bigger pockets on how to be a landlord and setting up systems that will make everything run smoothly. I am also trying to network as much as possible. I unfortunately had to miss one of the last Rochester investor meetups but am looking forward to ones in the next month or two to build up my network and connections. I am going to be managing my first rental as I live in the other unit and am certainly open and eager to operating another(s) if the opportunity were to arise in the Rochester, NY  market. I just wanted to see what your thoughts are based on where I am at this early in the game.

Thank you! I look forward to connecting!

-Ryan O'Malley

[Mark W.]

@Ryan O'Malley Here's my take as a fellow small multi investor in Rochester.  I would first research a good lease, you'll need one to either rent to a new tenant or put the existing tenant on (only if they are month-to-month currently, otherwise you need to honor the current lease term.)  My lease (actually rental agreement, I don't do year leases) has evolved significantly over time.  Either through experience or seeing language in other leases that I liked.

If the house will be vacant when you take possession, see if there are any improvements you can do that will boost rent and enhance "rentability."  New paint for sure, maybe new flooring or refinish hardwood floors.  Replace a grungy, out-of-date bathroom vanity and fixtures.  Update lighting, replace outlets, switches, and plates.  New appliances go a long way if the ones in place are old and gross.  How are the kitchen cabinets and countertop?  Not much to paint those and replace countertops/sink/faucet.  Work on the unit you'll be renting first, then work on the one you're living on as time/funds allow.  I assume you're going to DIY most of this; labor is very expensive and will kill your savings rate for sure.

See what you think of property and tenant management.  The most difficult part of landlording is managing people and their expectations.  You'll find out if you're up for it once you encounter difficult situations.  It's easy to collect rent, but when the furnace goes out, or you hear yelling and shouting next door constantly, or they don't pay that month, that's when you learn.

Start saving up for the next one.  I found it to be a slow burn at first, partially because renting a single unit doesn't add much when capital improvements crop up.  But as you pick up a 2nd and 3rd, things can start to accelerate.

Oh, as for an LLC right now, not necessary. And you can run into problems if you quit claim the deed into the LLC after buying in your personal name. The bank can call the loan due, it's called the "due on sale" clause. Lots of folks say it doesn't happen, but it does. And if interest rates ever go up appreciably, banks will be incentivized to call non-compliant loans. That's my take, at least. I'm admittedly very conservative when it comes to risk.