Is there a sweet spot for when an owner sells a multifamily?

Question

Hello all,

Weird title for this post and thanks for clicking on it.

My wife and I were just married Saturday and are finally looking to buy our first home together. Our market is overheated (I know everyone's is) and she is going back to grad school in the fall so we are looking at a duplex to offset that cost. Her most attractive feature is her lack of student loan debt, so we (I) would like to keep it that way with some rental income and equity building before we have kids.

That being said, as I start to write letters to some duplex owners, is there a sweet spot for when an owner is most likely to sell? I am thinking 15 years or longer those owners are most likely to sell as the depreciation isn't offsetting gains the way it used too but I'm not sure. Any advice to target my letters and use the remaining stamps from thank you cards efficiently would be helpful!

Thanks

Omar Khan · Answer

@Matt Kuhn Good points raised by everyone esp. @Alina Trigub.

Congrats on getting married!

Is there a reason you're avoiding using a realtor (FYI: I am not a realtor)? A solid investor-friendly realtor is a Godsend and will save your time, effort, money and, most of all, loss of brain cells.

In the current market, letters have less of a chance of working as most investors/landlords/owners get inundated with such stuff. You will be one among many i.e. your chances of success are lower.

It might work better to develop relationships with an investor-friendly local realtor as well as extensive networking with local investors, wholesalers and attending local real estate meetups.

Alina Trigub · Answer

@Matt Kuhn Congratulations on getting married and welcome to BP community! In terms of the sweet spot, you need to find the owners that have their assets for a prolonged period of time with more than 50% equity in it and older people that will probably want to either downsize or move down south closer towards their retirement. You can buy data on sites like Melissadata or you can do your own homework through the public records sites but it will take slightly longer to pull it together.

Donald S. · Answer

That's an investor specific question, everyone has their own cost/benefit analysis to perform. Some investors don't care that they've held the property long enough that they've used the entire 27.5 years of depreciation, others want to sell after 5 to 10 years of appreciation. In reality your depreciation expense $ amount is the same every year except the 1st and last, so that's almost a non-factor when looking at properties owned for ~15 years. Most charts I've seen does have an "optimal" time to sell as 5-10 years in, although that's taking a lot of assumptions in the calculations.

Matt Kuhn · Answer

Thanks again Donald,

Being an accountant, is there a certain time where between interest costs and depreciation, a rental is no longer giving off 100% sheltered cash? I know you get 27.5 years to depreciate the property, just wondering if you have done any research into when an investor would look to exchange into a larger property or another one.

Thanks.

Donald S. · Answer

@Matt Kuhn, I understand why you're looking for a duplex now. I would still try for 3 or 4, but if that's what you have to work with then so be it. As for the realtor willing to "help" for a flat rate, screw that. As a buyer you wouldn't pay a realtor anything if buying from a marketed MLS property. And you should be able to easily get a 5% conventional or 3.5% FHA loan. Find a realtor that's worth it, and have him set you up a search on your city's MLS, I'm sure you'll find something where the numbers help your situation.

Matt Kuhn · Answer

Donald,

The reasons we are looking at a duplex specifically is one tenant is less headache for us as this will be our first investment property, the lenders we are pre-approved with are only interested in a duplex nothing larger for first time buyers programs, and our city is loaded with side by side duplexes.

Just convincing my wife to buy an investment property took a lot of Chip and Joanna Gaines books, and the agreement that it would be "cute" as some of the duplexes are brick Tudors with wood floors, fireplaces, and in up and coming older neighborhoods.

Matt Kuhn · Answer

@Omar Khan  I am actually using a realtor, who has offered to help by doing the transaction for a flat rate since they are both realtor and broker. The realtor will only do this if I find the property and keep it off the MLS.

I also have reached out to another realtor who invests and am on the often daily email chain of new properties.

As far as meetups I have met a few older investors from my side job tending bar at a private golf club who have been incredibly helpful. They tend to only own single family but have said they would be on the lookout for duplexes of their friends.

It's just getting frustrating that with appreciation more people aren't getting out with age.

Donald S. · Answer

@Matt Kuhn even if your market is overheated, the MLS can still be a good place for multifamily 2-4 unit buildings. The target market for them is smaller than single family, and thus usually they have a slightly lower value. Is there a reason you're looking for duplexes specifically? I'd look for a tri or quad if I were you. And if you'll be house hacking, as long as the rents you collect allow you to live for less than the amount it would cost you to live in a SFH by yourself then you're golden. Obviously if you can get the rents to make it to where you live for free or get paid to live it's better, but even saving you 400-800/mo is a huge benefit.

Good luck, and congrats on the marriage.

Cheers!

Matt Kuhn · Answer

Thanks Alina for the well wishes, I have been doing public records sales searches in the county assessor to find properties sold a while ago.

Thomas S., Apart from the obvious Craigslist and Zillow where is the best place to look for properties with below market rents? I have also been combing those sites for rentals to find owners with vacancies hoping they are over leveraged and would sell.

Chris, besides befriending a sheriff at my local Dunkin donuts, how would I find a list of evictions.

Thanks everyone!

Is there a sweet spot for when an owner sells a multifamily?

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