What Size Multi-Family should be my first purchase ?

Question

When first starting my real estate journey I spent a-lot of time thinking about what vertical I want to enter. After debating with myself, i figured since I am a younger male with no family the best route would be for me to house hack a Multi-family, and rent out the other sides. My question lies with is their a specific  type I should be looking at, whether fourplex, triplex, or duplex ? I don't want to be overwhelmed seeing it will be my first property, but i also want good ROI. I know you can find good deals anywhere, just debating if there should be a target property in seeking out for a first time investor.

Scott Mac · Answer

I think this is what @Michael Dumler is saying, but I'll put it more in a more step by step manner for a new-bee.

Talk to a lender and see how much you qualify for. Pre-qualification

If you are too "Poor" to buy what you want in a neighborhood you are comfortable in, look at 1st time housing grants to increase your down payment amount so you can buy more house.

The amount of the loan, and the amount of your down payment + grant will dictate a particular MAX purchase price for you.

Be sure to allow for closing cost and loan costs in your calculations.

Once you have that MAX dollar amount you can spend start looking at what you can afford in different neighborhoods.

For instance in some cities you might find a Class D neighborhood 4 plex in good shape for the same price as a Class B neighborhood duplex.

The Class D place might give you more cash flow than the Class B too,

[BUT]

Maybe your chance of getting robbed or shot or carjacked in the Class D neighborhood might be greater than the Class B neighborhood (so factor things like that in too).

The question is still which should you buy--First whittle it down to specific properties the Bank will let you Afford--then make an apples to Oranges comparison as best you can.

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Pre-qualification (free-no obligation service) means that the  lender has reviewed your financial info and believes you will qualify for a loan. Talk to them about this to get an idea of how much you can buy. There should be no cost, or obligation to take out a loan, and no credit check involved.

Pre-approval is the second step in the loan process, which is a conditional commitment to loan you the money for a mortgage. This is what you will want when you are ready to buy. Preapproval is usually free but some charge an application fee (of $300 or more) or so.

This is a more specific estimate of what you could borrow and requires your W2, recent pay stubs, bank statements and tax returns. The lender uses these to decide how much you can be preapproved to borrow.

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Good Luck!

Will Fraser · Answer

Welcome to the most engaging game I've experienced so far, @Colby Zeller!

For my money I'd look to get the BEST property I can that works well as a househack AND is something I'll be glad to own for decades after moving out.

I'd focus on this more than door count, because I would far rather own a great duplex and figure out how to make it work than own a hunk-of-junk 4-plex.  However, if I found a great 4-plex that I'd likely be happy to own 20 years later, I'd jump at that in a heartbeat.

More units generally means more diversification and also more complication.

Only take on more complication if it makes sense.

Patrick Drury · Answer

@Colby ZellerIf you can afford a 4-unit then by all means buy it. Typically, house hacks are not going to cash flow very much, if at all. It's a great way to get started in real estate by investing little to no money, and ideally minimizing your housing payment by offsetting the mortgage with rental income.

Brandon Goldsmith · Answer

I would try and find anything that is a good deal/ good area for a 2-4 unit house hack. For Columbus, there is the most inventory for duplexes in the city @Colby Zeller

Remington Lyman · Answer

I did a house hack when I first started in 2017 here in Columbus, Ohio. It does not really matter what deal you offer on and get as a house hack. The COC return is going to be great. I would recommend doing it in am A or B location since your loan will go farther on a more expensive property.

Jason Nguyen · Answer

Personally, I’d pick up a Quadruplex in an upcoming neighborhood, simply because it has more doors. Say, Unit D moves out you still have Unit B and C paying rent while you occupying in Unit A. Whereas, say a Duplex, if Unit B moves out while you’re living in Unit A then you’ll probably have to pay rent for the entire building while looking for a tenant. Single family home is even worst unless you rent it out as room rental, but that can be uncomfortable.

That is just one thing. You also have the ability to do short-term rental on one unit to boost cash flow and long-term rental on the others to keep the monthly mortgage afloat. Many things you can do with the Quadruplex.

Bob Stevens · Answer

If you have a team in place then go big or go home :) If you are trying to go it alone with zero experience, stay small, duplex then grow. Either way you need PM. You do not want to have to deal with late payments, evictions, lead inspections repairs and more.

BTW you canNOT find good deals anywhere. Well for some a good deal is 5% net cap. So sure, you can get that anywhere.  For me I would not get out of bed for that,

Good luck

Dylan M. Davis · Answer

FYI, Lenders will consider your experience when qualifying you for financing in the future and living in the investment property you own won't be considered. I don't want to steer you away necessarily from house-hacking, just know that if you ever do hard money down the line (which is the best to scale your business  IMO) we won't consider a house hack as management or investor experience! Just something to consider!

Sam McCormack · Answer

@Colby Zeller

I am definitely down that same route, I will be househacking a small multifamily house. Columbus, Cleveland, Cincinnati, northern ky, etc. I am in Cincinnati, let me know if you are looking in Cincy or NKY, I'd be happy to help!

Justin Rademacher · Answer

A lot of people who are just getting started in investing do what you are doing which is an awesome start. They owner occupy. There are numerous strategies you can employ so here are some things to look at.

Dont just focus on quick cashflow. Realize you are creating equity by owning and renting it out. Eventually you will more than likely move out and rent out the unit you are living in. From my experience, most people start with a duplex and move their way up however, that doesn't mean its the best strategy for you.

When I advise my investor clients, I always talk about value add opportunity. Find a property that you can add simple value to over time. Updating carpets, kitchens bathrooms etc. This not only allows you to increase rents later, but you can also cash out refi and get a lot of your initial money back.

Hope this is helpful!

What Size Multi-Family should be my first purchase ?

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