Buying a 6-plex for a newbie

[Robert Baker]

I am new to the real estate investment game and trying to get my feet wet. I came across a 6-plex that appears to be a good deal. I am curious what to be aware of when buying a 6 unit building (6 connected townhomes) versus typical 1-4 unit buildings. Any advice is appreciated! This building is listed at $420,000 with a mix of 2 and 3 bed units. I estimate an average of $800 per unit monthly rent, I plan to get the actual details tomorrow as it is fully rented. What financing options do I have or should I pursue?

[JaMarcus Joseph]

Welcome to BP. Congrats on the find. I'm in the middle of closing on a 5 unit apartment building. First and foremost, you need to realize it's commercial real estate and it changes the rules you have to follow. Public safety and the ability to be sued is the number one thing my property inspector keeps stressing to me as a commercial investor. You have too make sure everything is up to code, and see if anything is being grandfathered in that may come back to bite you with new tenants. Like what is the city's policy for handicap accessible living? What happens if a wheelchair bound tenant complained to the city that you weren't accessible? Hazard insurance, fire safety, carbon monoxide detectors, etc. I suggest you google the Housing Quality Standard inspection form. It's similar to the HUD housing voucher inspection form but it allows you space to comment instead of checks. That'll give you a pre-inspection before the actual inspection. And you want that because he sees things you don't, gets raw tenant complaints, and he comps (limited) the area for you. Don't hold off on the property inspection and make him your friend. Talk to several.

I'd talk to a broker and several banks if you're going the traditional route. Try to put them against each other to get the best rates. One local bank here has a standard 6.5% for all commercial amortized over 25 years with a 3 year balloon. IMO, that's chasing customers away. The FHA has some programs for commercial residential properties. That can be pretty sweet and can cover huge debts. The sky is the limit with FHA secured real estate loans.

My biggest piece of advice is to have a business plan. While investing should be seen as a business from the beginning, 5+ units is a business from the beginning! Whether you plan to manage them yourself or not, you're in the business of landlording as long as you intent to hold them. You should have a living, adaptable plan for each commercial property you acquire. The SBA has wonderful information available. You should look up score.org and sign up for a free business mentor. My property inspector is an advocate and taught me a lot. The SBA will offer guidance, access to money, and access to people. 

Sorry I went on for so long. Those are the things I'm learning now.